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When And How I Collect Profits (08-06-21)


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It’s been a while !

Sorry for any missed absence. I updated my MacBook and ever since, I have been unable to log into IG . I think the update has effed up my Mac so I have to take it to the nerds at Apple to see what they can do. Currently typing this on my phone so it’s gonna have to do until I get something sorted.

Ok, now back to the topic at hand . How do I collect profits to ensure consistent gains and proper risk management ; it’s pretty simple for me . I use the volatility assessment of the asset I am trading or investing in as a guide for when to book profits.


Check out the example below;  

Yesterday I was quite busy booking a lot of gains on positions that have worked. If you recall in March I was 30 percent down 😂😂.  I can laugh about it now because  like Stella I finally got my groove back  and as to how, read on playa. 

Like I mentioned earlier, It's pretty simple. I use the volatility assessment of the asset I am interested in as a guide. When the volatility of the asset drops, I manage the position by taking some cash off the table. I don't sell all of it, I simply  start taking some cash off maybe a third at a time. There are no hard and fast rules. But if capital preservation is your objective like mine, I take a third off at a time as the vol comes off. Check out the vol of the spy below ( log returns ) 

67AB316A-F11C-4DB8-B486-1EEC58B282F2.thumb.jpeg.c862f3fd9488416266a358adf65cb252.jpeg

Those dips are periods where the spy expressed  negative returns. My strategy simply waits for those moments and when the arrive I execute my buy orders. If you observe those dips eventually become positive and as gains start to materialise, I start to collect my profits as returns become more and more positive there is a rising probability that future returns will likely be negative. Therefore I take as much profits as I can without closing the entire position. This is done in the hope that correction occurs,  which provides me the opportunity to buy more of the asset I like at a lower price  ( if it's in a bullish trend ) . Rinse and repeat. If a correction doesn't occur, having banked a bit of profit, I let the rest ride sit back and observe. 

This  is quite systematic prevents any fear of missing out. Understanding the volatility of the asset you are trading allows you to buy when others are fearful and sell when others are euphoric. That's it. Simple.

    That said when I look at markets today, euphoria seems to be the theme with economies reopening. In this scenario I would be cautious about chasing highs at these levels. I have been busy booking profits I don't think it's a bad idea to do so at this juncture. Why ? Check out the charts below.E625D821-92F0-4719-AA36-77033359B94F.thumb.jpeg.ef41650c8992b488e85cf9338478d7f3.jpeg.

CE78C5C0-2FCF-4A3C-B4AB-6356D93DD60E.thumb.jpeg.68be0b4c9b61456de3c0de830d643f97.jpeg

What you are seeing are log returns of the vix and returns of the vix differentiated with fractions respectively.

Historically, we have always had a slight surge in the vix when returns are this depressed. This is why I am very comfortable taking some money off the table without feeling like I'm missing out on any upside ( remember I a not all out, I still have some capital in) . This should hopefully workout should we get a correction as it will provide me with enough capital to buy if / when prices come down. Which I think they will. 

 

That's it from me folks, take care out there!!

CA

Edited by Rintel
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  • Rintel changed the title to When And How I Collect Profits (08-06-21)

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