Right now, there is a lot of talk in the market about stopping profits. Are these profit stopping methods really effective and suitable for us?
In this article, let’s compare these strategies.
- Target take profit method
Pros: The method is simple and novice-friendly
Cons: Easy to sell prematurely
Target profit stop is the most common profit stop strategy. Generally, when your investment profits reach more than 30%, you should stop making profits one by one
This is a very friendly strategy for beginners, it ensures that some benefits come first, and the operation is very convenient.
The downside is that you may stop making profits prematurely.
Stopping profits too early can lead to selling off chips early in the stock market rally and missing out on higher returns later on.
- Retracement and take profit method
Pros: We don’t miss the big market
Disadvantages: inhumane, difficult to operate
A target profit stop would cause us to sell prematurely and make less.
So the smart kid thinks that if I wait for it to go up until it can’t go up and starts to go down, I won’t run out of steam.
Retracement Take Profit is when the index falls from its highest point and reaches a certain range (such as 20%), it will sell to complete a profit stop loss.
This is a logical approach, but its biggest drawback is that it goes against human nature
Top has decent income, but we had to watch it drop 20% and sell it. This is equivalent to taking all our money. This is very unpleasant, so very few people do it.
Moreover, it is also a subjective judgment of how much to withdraw to stop profit. Some people think that it is 10%, and some people think that it is 20%. There is no fixed standard, which adds additional difficulty to the operation.
- Batch take profit method
Pros: follow the crowd, good attitude
Disadvantage: too random
The batch take profit method is usually combined with the above two methods
For example, when production reaches 50%, stop the profit part, and wait for it to rise by 50%, stop the profit part.
Combined with the target profit stopping method, this is a good plan from an investment psychology point of view. Don’t ignore the psychological comfort of a bag that has fallen to the ground. Seeing some benefits will give you more motivation to stick with it in the long run.
The downside is randomness. How much do you sell? How much? There are no clear rules. It all depends on your personal feelings.
However, if you don’t demand a return on investment and don’t want to spend too much time on research, batch + target profit stop is still very suitable.
- Valuation take profit method
Advantages: quantitative operation, clear
Cons: The market is dynamic, you won’t find a sword on board
This strategy corresponds to what we often say “buy when it’s undervalued, sell when it’s overvalued”. The tool usually used to judge valuation is PE (price-earnings ratio).
The formula for PE is stock price/earnings per share. If the PE is too high, it is usually considered that the stock price is too high relative to the current corporate earnings.
So everyone wondered, if the PE is high, doesn’t it mean that the market as a whole is overvalued, so I will sell it, and when the PE is low, I will buy again.
There is no problem with the logic, but it should be noted that in different time periods, the valuation interval may be very different, and it is necessary to avoid seeking swords.
In addition to the above several take-profit strategies, there are also methods such as “market sentiment take-profit” on the Internet. Lucy will not analyze them one by one. Such as emotions are too subjective and difficult to operate.
Finally to sum up:
If you don’t have a high obsession with returns, but pay more attention to the convenience of operation, and have a good mentality for long-term investment, then taking profit in batches + target take-profit is a take-profit strategy that can be considered.
Retracement and taking profit sounds beautiful, but it is too contrary to human nature, so few people can do it, and it is not recommended.
Valuation to take profit is suitable for those who pursue higher returns, but it needs to be supplemented with a clearer way to define valuation.