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Strategy - Time Based Profit Targets

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1 Strategy - Time Based Profit Targets on Sun May 17, 2015 12:52 am

Just wanted to share something that I have found successful when trading - time based profit targets.  

What I typically do is set profit targets that increase as time goes on, for example, if a stock hits 10% in 2 weeks, take profit, but if not, next profit target is 15% in a month, and if not next target is 20% in 2 months, and maybe 30% in 6 months.  This has an interesting effect on annualized returns.  For example, if you take 10% profits in 2 weeks, over a year, those profits are annualized as 260% (26 2-week periods x 10% = 260%).  

A lot of stocks have the potential to gain 10% in 2 weeks, but not a lot of stocks have the potential to gain 260% in a year.  Thus, a potential to lock in 260% annualized gains on as many stocks as possible, using these numbers.

Optimally, the historical chart of a stock will be analyzed to determine probable time based profit targets.

For example, for WFM, one may use:

and shoot a few percent above this, say 8% in 30 days, 15% in 60 days, and settle for 20% in 90 days and maybe take all profits shortly after that if target not reached.

Anyways, for my trading systems, I usually don't look at the charts too carefully initially, and just set 10% 2-1/2 week targets, 15% 1 month targets, and 20% 6 month targets, but I'll monitor picks and adjust targets as the charts dictate if the picks are getting close.  For example, I may have a 15% 1 month target, but if it gets there in 5-6 weeks, I may just take it depending on what the chart looks like for that particular stock.  15% in 6 weeks is still 130% annualized and may be worth it.

Bonus:  some stocks reach their targets faster than the targets I set.  For example, I've had stocks reach 10% profits in 1 day.  250 trading days/year x 10% = 2,500% annualized!  I don't expect this all the time obviously, but it is nice when it happens.  

Results: What I have found is that by using this strategy, the returns for my intermediate term trading portfolio the last few years have been in the 30-60% range.  I have had lots of losers and some stocks with sideways action, but the total returns have been in that range.

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