There comes a time that you will have to decided when to sell you profiting position. Off course you do want to do that at the best time possible to make as much money as you can.
But there also lies the trap, when is the best time? Off course looking backwards you can point out the top in every chart as the best time. That is the moment the stocks has made as much profit as possible before it is starting to lower your gains.
Too bad you can never know what the top will be in advance. So you will somehow have to decide when to sell and take your profit before it will turn around.
Regarding to this William O’Neil wrote another great anecdote in his How to Make Money in Stocks;
This one is called The Turkey Story;
A little boy was walking down the road when he came upon an old man trying to catch wild turkeys. The man had a turkey trap, a crude contrivance consisting of a big box with the door hinged at the top.
This door was kept open by a prop to which was tied a piece of twine leading back a hundred feet or more to the operator. A thin trail of corn scattered along a path lured turkeys to the box. Once inside the turkeys found an even more plentiful supply of corn. When enough turkeys had wanderd inside the box, the old man would jerk away the prop and let the door fall shut. Having once shut the door, he couldn’t open it again without going up to the box and this would scare away any turkeys lurking outside. The time to pull away the prop was when as many turkeys were inside as one could reasonably expect.
One day he had a dozen turkeys in his box. Then one sauntered out, leaving 11. “Gosh, I wish I had pulled the string when all 12 were there.” said the old man. “I’ll wait a minute and maybe the other one will go back.”
But while he waited for the twelfth turkey to return, two more walked out on him. “I should have been satisfied with 11.” the trapper said. “Just as soon as I get one more back, I’ll pull the string.
But three more walked out. Still the man waited. Having once had 12 turkeys, he disliked going home with less than eight. He couldn’t give up the idea that some of the original number would return. When finally only one turkey was left in the trap, he said “I’ll wait until he walks out or another goes in, and then I’ll quit.” The solitary turkey went to join the others, and the man returned empty-handed.
As you see the old man was waiting for the top in the number of turkeys in his box. But he could not predict what number was the absolute maximum he would be able to get in that day. So when number 12 (the maximum of that day) walked out he decided to wait and see if it would walk back. Because he was now focused on the 12 he had once and didn’t want to settle for less.
The 12th didn’t come back, but instead two more walked away now leaving him with only nine turkeys in his box. As the number of turkeys declined he was more against taking his profits of the day as he still was focused on the 12 he once had in his box.
Eventually his waiting left him with no turkey at all.
This often happens in trading too. You see your stocks go up and up and making more profit for you every minute, hour or day. Eventually you become so focused on the paper profit you’ve seen on your screen that you will not settle for less.
But than the stock seem to go down a little. No this is just a temporary set back, it will bounce soon enough and make me even more money you think.
The longer you hold on to this thought the more likely it is that all your profit will be walking out of your box too and it leaves you empty-handed as well.
Don’t be afraid to take you profit when it looks good and even when you think the stock can go higher. If you want to be sure of your money get out and take it off the table.
Especially when you see your stock turning around and go against you. Don’t wait to long and hope for a bounce. If there is no real reason why this would happen take the safest guess and get out.
There are some reasons why a stock would dip for a moment and than bounce back and even go higher than first. Only anticipate this when you’re most certain that this will happen.
And than your best option is even to close your position, take your profits and watch for the stock to find support on his way down as a sign that it could bounce. This would be nice new entry point to get back in the game and profit from the upcoming bounce.