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when to take profits trading ETFs

I just trade ETFs and currently take profits when I get stopped out or if the indicators I use deteriorate . If I have a profit between 2 and 3% I place my stop loss at the purchase price; for profits between 3 & 5% the slop loss is placed to preserve 50% of the gain; for profits between 5 & 10 % the stop loss is placed to preserve 75% of the gain; for profits between 10 & 15% the stop loss is placed to preserve 80% of the gain; for profits above 15% the stop loss is placed 2% below the close and only moved higher, not lower.
I am noticing that in my successful trades the price usually advances 5% within the first month after purchasing the trade. After that it can continue to rise, it can fall or it can move horizontally. My question is if you can capture a 5% gain within one month of purchasing a trade with a sell limit order that is placed once the trade closes 4% above the original purchase price would you be better off in selling the trade, assuming there are other potential good ETF trade candidates to reinvest in, or holding on to it longer hoping for a further increase? I wonder if any statistical analysis studies of this have been done and what are the percentage odds that an ETF trade once it reaches a 5% gain over one month will continue to advance, and over what time period you need to hold it to get a further significant advance in price.
So are you better off taking a 5% gain in one month trading ETFs and reinvesting the money in another good ETF trading candidate, or holding on to the trade longer hoping for a higher percentage gain?


  • markdmarkd mod
    edited November 2014
    Not an ETF trader, but in general, I think it's better to use your indicators (or better, your bar by bar interpretation of supply and demand), and not the per cent gain as an exit signal.

    I don't think statistical studies of per cent gains in ETFs would be helpful. They wouldn't apply across different ETFs and, depending on the ETF, say a technology ETF, they wouldn't necessarily apply across time either because the market changes as the companies mature. The market changes, too, with monetary conditions. Per cent gains are likely to vary with easier or tighter money (tighter money means margin is more expensive, so positions get smaller, depressing demand).

    As for when to get out, looking at things bar by bar, if an up-trending market stops going up on big volume bars (meaning really small gains on close compared to recently (so big wicks or compressed range), or actual down closes), that's a warning to cut back positions. If it then makes higher closes on lighter volume, or a not new up close on higher volume - that's the top, or close to it. (This kind of action probably accompanies your deteriorating indicators.) Sellers actually have to follow through on buyer weakness to make the market go down. In some markets that won't happen (and if it doesn't, the market can go big to the upside), but in most it does, so I think it's safer to be out. Personally , I think it's dangerous to hang around in a side ways market, even in an ETF. But, if you don't want to just get out because things look a little weak, you could put a stop under the most recent higher volume up close bar. But you are exposed to a gap down open if you do that. If the downside fails, and buyers make new highs again, you can always get back in. If you are afraid of missing the up side, you can cut your position to leave some in, or put in a buy stop above the market, or some combination. Or if you really want to stay in, you could buy puts, if available to protect your downside.
  • I only trade ULTRA & INVERSE ETFs, but I don't use a stop loss because I believe Stock Charts gives us other tools. I use Elder Impulse for chart style because as long as the price bar is either green or blue, price is still rising. I also use the PRICE indicator from the drop down INDICATOR menu which gives me the mirror image of my ETF, this in itself I think is an amazing visual tool. The only actual indicator I use is VORTEX. So as long as Plus VTX is greater than Minus VTX and the price bar is either green or blue I stay long. My exit is a red price bar. A perfect example is the current movement of TQQQ. It's been long since Oct 17th for a current profit of 35%.
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