Market Lab Report - Taking profits when you have them

Published : July 28 2016 at 17:11 ET

Members and non-members will note the many emails we have sent where we have suggested one must be extra nimble in this QE-manipulated market. Taking profits when you have them in context with your risk tolerance and money management strategies while closely monitoring buying and selling pressure in the general markets has been a good way to baby-step your account higher month after month so by the end of the year, a healthy profit is achieved. 

Likewise, keeping stops tight has been just as important so you preserve more of your capital for any future trades that turn out to be profitable.

The VIX Volatility Model has built-in profit taking rules. When a profit taking alert is hit typically around 14-15% on BUY signals, it does not necessarily exit right at that time, but instead looks for a logical exit to potentially maximize profits, after all, 14-15% profits can go a lot further on BUY signals when the market is falling and volatility is spiking. 

The VVM has no profit taking alerts on SELL signals, but the current sell signal is up over +10%, or +12.15% to be exact as of today's close. Given the scarcity of double digit profits, some may wish to take partial profits. The sell stop is currently close to the price at which the sell signal was issued, so in a worst case scenario, one would get "round tripped" where their profits of 12.15% are closed out at breakeven. 

Keep in mind that some of the VVM SELL signals can go a lot longer than expected as the market can, on occasion, trend higher for weeks. So the question of whether to take partial profits here depends on each individual's risk tolerance levels and money management style. 

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