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The scenario is that a trader wants to trade just one stock through swing trading and take the profit. For example, the trader bought 50 shares of XYZ for the price $5. The stock went up to $7. He sells it immediately and take the profit of $2 per share. The profit is $100. He can then enter the same stock when it goes down to $5 and sell it when the price reaches $7. There are potential chances of stock can stay at $6 for long time or go to $3 or $8.

What are some of the strategies that traders can use to grow profit?

  1. Should the profit $100 received in the first trade be put back to buy more shares?
  2. Should the profit of $100 be moved to a savings account?
  3. How long the trader should wait before entering another trade? Once the stock has reached $7, there are possible scenarios of going higher to $8 or back to $3. It can also stay in $7 for long time like weeks.
wonderful world
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    This depends heavily on why you are investing in the first place. Choose a goal, and continue investing until you have reached the goal. ("Pay my kid's college tuition" is a goal; "earn more profit" is not. You can't make meaningful investing decisions without having a goal in mind.) – chepner May 15 '22 at 17:38
  • @chepner On the other hand, investing with the goal of paying for a specific thing was criticized by the legendary Jesse Livermore: "There isn't a man in Wall Street who has not lost money trying to make the market pay for an automobile or a bracelet or a motor boat or a painting. I could build a huge hospital with the birthday presents that the tight-fisted stock market has refused to pay for." – nanoman May 16 '22 at 04:14
  • @nanoman That is a very good informative link. That link addresses my question. – wonderful world May 16 '22 at 11:13
  • @nanoman Never heard of him. But I suspect that has more to do with trying to make a profit quickly, in the short term, by timing the market. – chepner May 16 '22 at 12:36

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Buy something that you think will go higher and sell something that you think will go lower. Your success will depend on the accuracy of your prediction. There's no strategy that will work well regardless of what the instrument traded does. If there was, then other people would catch on and exploit the strategy until it no longer has an edge (efficient market theory). If you don't wish to predict, then simply buy an index fund and hold for a very long time. Prices tend to go up over time.

486DX2-66
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  • My question is also that what I should do after I have a profit. For example, I bought an ETF, and the price went up and sold it. I have 20% gain. Should I re-invest that money or move that money to a Bank as profit? – wonderful world May 15 '22 at 17:05
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There's no correct answer here and what's appropriate depends on your age, risk tolerance, and goals.

If you want to have a shot at maintaining ROI, you have to trade with your gains. Putting gains in the bank will lower your yield, especially given that current bank yields are kaka.

I traded heavily when I was younger. Because I had a set amount of dollar risk, I consistently moved trading gains into safer investments. That was my comfort zone.

As for your trading questions, you need to work out a plan and then as you trade, evolve it. Learn from the process and give it up if it doesn't work. It's not for everyone or perhaps, everyone isn't for it.

Bob Baerker
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  • I'm reading now Larry R. Williams book 'How I made 1 million dollars last year trading commodities'. He starts with the chapter on money management and explains with an example. He uses the word 'pyramiding' when the money is over exposed due to greed and over confidence. Taking profit and moving to a different savings account as you said may reduce the temptation of greed. – wonderful world May 15 '22 at 23:17
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The taxes and transaction costs alone are gonna kill you. Plus you have to be constantly right about predicting the future. It won't work.

JohnFx
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  • My question is also that what would you do after you get a profit? Let us take the scenario that I keep the stock invested for a year, and the investment went up 20%. Should that 20% be moved to a Bank as profit and invest only the remaining? – wonderful world May 15 '22 at 17:03
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    @wonderfulworld It depends on what you invest in. Over a long period of time, that would be an inferior strategy to buy and hold if the investment was the S&P500. If you do that strategy on a stock that eventually goes bankrupt, then you would have a better return than buy and hold. As I said before, it really depends on how the investment performs. Instead, I would advocate for diversification and occasional portfolio rebalancing. – 486DX2-66 May 15 '22 at 17:42
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    Taxes are going to kill you? LOL. I'd be happy to pay more and more taxes every year because that would mean that I had more trading profits. Most brokers do not charge commissions now so transactions costs are not a factor either. Predicting the future is impossible but there are trading strategies where no insight into the future is necessary. – Bob Baerker May 15 '22 at 19:11
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    Yes, but with an active trading strategy OP is going to be paying capital gains as short term vs long term. Plus, it is coming out of the money you are re-investing so the money is in the market less time. – JohnFx May 15 '22 at 20:48
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    It's not as simple as that because it's not an all or nothing proposition. Some don't want all of their cash equivalent assets fully exposed to the market. There's a certain amount of safety in being in cash much of the time in a trading account. Yes, most underperform the market over the long haul but you also don't ride the market down in bad years (down 50% in 2000 and 2008 as well as 16% so far this year). – Bob Baerker May 15 '22 at 21:52