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What Is a Realistic Profit when Trading Stocks?
We trade stocks to make money, protect investments that we already have, and make our lives better in the future. This mindset is good to recall when trading in the trenches on a hectic trading day. The thought that comes to mind today is just what is a realistic profit when trading stocks? All too many traders have forgotten to set their trading stops and seen a promising trade reverse from profit to loss. All too often a trader intentionally does not set an upper “sell” stop as he wants to “let the trade run” to higher profits. To the extent that a person has results from sound fundamental and technical analysis that predict a huge rise in stock price, this may be a good strategy. However, just letting a trade run in hopes of gaining a larger profit is all too often a recipe for disaster. Always ask yourself what is a realistic profit when trading stocks in any give sector and on any given day. Market research can be useful at this point. It turns out that after a big market move prices tend to correct a bit backwards. This works on a multi-year time frame and on shorter time frames as well. The stock market is efficient in the long run and often inefficient in the short run. This is due to speculation of both investors and short term traders. When asking yourself what is a realistic profit when trading stocks, remember the tendency of the market to backtrack.
The Author’s Barron’s Effect
Years ago when Barron’s was only in print and not online, this author often purchased stocks mentioned in the publication. My theory was two-fold. First of all, when the magazine interviewed experts in the matter of picking stocks, they often recommended stocks that had a good growth potential. Second, everyone else read the publication and decided the same thing and went out to purchase the stock. This author profited several times by purchasing the publication on the weekend and placing stock orders at first light, so to speak, on Monday. The part about what is a realistic profit when trading stocks in this story is this. I set 30% as the gain to expect before selling the stock in question. I certainly missed out on further growth in a couple of these stocks but I also avoided huge losses in more than a couple. What happened to market sentiment with these stocks was that when they failed to pan out, investors bailed in huge numbers, driving the stock price down. And sometimes the initial advice was bad as well. But being mentioned in the famous publication tended, in the short term, to drive stocks prices up.