When trading individual stocks (usually my preference over trading the broad market such as SPY, ES mini-futures, etc..), I will typically align or modify my profit targets with the broad market. For example, I’ll use the EVR Active Short Trade as an actual example. EVR was posted as a short entry at a price of 54.89 on April 3rd, listing two profit targets on the trade (T1 & T2). Although T2 remains my final swing target at this time, I have decided to book full profits on my EVR short at a price slightly above my first target of 48.75. EVR hit a low of 48.79, just 4 cents above my target but being that the $NDX/QQQ, which I consider the leading index at this time and as such, I am putting a heavier weighting into my analysis than the $SPX/SPY, has hit my final near-term (60-120 minute) and first daily targets and as such, is likely to bounce, I have opted to reduce my overall short exposure. In doing so, I look for my existing trades that have hit or are near a price target and then make a determination on whether to book partial or even full profits or to let the position continue to ride.
That decision is based on various factors including the technical posture of each position but a big weighting in my decision is what my expectations for the broad markets are. As stated earlier, the odds for a meaningful bounce are elevated at this time and as such, if a position, such as EVR has not yet hit the price target that I was focusing on when I entered the trade but is close enough, I may opt to book profits a little early as a bounce in the broad markets, i.e., a rising tide, is likely to lift all ships. Even if my take on the broad market is wrong and prices continue to fall sharply below current levels, trading is all about weighing the potential risk vs. the potential reward. I’d rather not risk giving back some nice gains by holding out for higher profits with the markets becoming oversold on the near & intermediate-term time frames while at resistance with potential bullish divergences forming. To me, remaining aggressively short here does not offer a very favorable R/R.
EVR daily April 11th
On a final note, as the possibility that the markets do manage to slice through support and continue to move toward my additional downside targets, I have opted to place relatively tight trailing stop loss orders on many of my other short positions (vs. closing out the trades). The advantage of relatively tight trailing stops is that it allows you to “let your winners run” while also helping to lock in most of your profits, should the trade start moving against you.
Again, the decision to book profits or let a trade ride with stops in place is dependent on various factors such as my preferred target and the individual charts of each position. The most important thing when trading is to have a plan in place. This holds especially true when shorting as stocks usually fall much faster than they rise. I find that being flexible in your plan as far as booking profits earlier or even extending your price targets, depending on how the bigger picture (broad markets) is developing. The markets (charts) are dynamic, not static, and as such, a trader must constantly review & revise his/her game plan.