A trading strategy might have several different types of exits, among them the Profit-Taking Exit.  As the name suggests, the idea is to bag some profits.  Cha-ching!

Extra Insight:

The profit-taking exit won’t necessarily mean selling at the top.  That’s difficult, maybe impossible, to do consistently and its often called a fool’s errand to try.

Some examples of profit-taking exits are price hitting the upper channel boundary or a pre-defined target percentage gain.

Another profit-taking exit is a trailing stop.   A stop (loss) order is put in place below the current price (or above it for a short).   As the stock price moves up, the stop price moves up too.   Different methods of trailing a stop: ATR (average true range), percentage, and fixed dollar to name a few.

I’m just listing a few possibilities here, not suggesting which one to use.

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Updated 11/12/08.

Tags: ATR, backtesting, exit, loss, percentage stop, stop, strategy, trading, trailing stop