Greed kills

When should you exit a profitable trade? This is a good problem to have but I see many people including good traders that I know have genuine angst when they lose profit on a winning position. Apparently it is just as painful to lose profit as to incur a loss, it feels the same so we will leave it to the professional psychologists to analyze why that is, I will concentrate on the charts and what you and I should do to not find ourselves in this position.

For shorts of 'junker' stocks like the ones we like to play, I find that the safest position is to take it 2-3 days down, and 4 days is a bonus. Do not try to take it down more than 2-4 days unless you are prepared to hold it for a longer term, which may turn out to be a successful long term strategy but goes against my personal strategy of making the most out of the trade and moving on. Unless you have excess capital to apportion to the position, don't try to ride these positions for a week or more unless you are prepared for the long term.

Let's look at a few winning charts from the past few months.

Clearly, the play on these shorts is hold for several days but at some point holding too long is a detriment- some of these clearly rebound on the 3rd, 4th, or 5th day- so how do you tell the difference between a junker that spikes up in the morning and crashes later versus one that will genuinely spike up and run? 

Answer: you don't, unless you are very familiar with the stock, and that is still no guarantee. Hold for 2-4 days maximum and don't get caught in the reversal. For WRSP, although lately holding the short is a good position, earlier in the year closing after 3 days down was the perfect play. Closing after 3 days down would still give you most of the gains here without the risk of a run up.

The reason I bring this up is because of SIL, holding for 5 days was an incredible play, but at that point should have been recognized as being beyond the bounds of any reasonable trade, look at the chart and see that anyone in their right mind should have closed out at 1.65 after 5 days down, here is a case of epic greed taking hold, anyone still holding is waiting to get back to where they were after 5 days down, just don't be greedy and you would have already moved on to the next play, ha.