The S&P 500 slipped 29 points Wednesday in a rare giveback since the March lows.
This was only the third down day in a powerful, 450 point rally. While that shows just how huge this rebound has been, we need to be prepared for a reversion to the mean. In non-math lingo, that simply means every bit of up is followed by a bit of down.
It’s been a nice run and it’s given us a mountain of profits. But now it’s time to shift to a defensive mindset so we don’t let these profits escape.
As much fun as this has been, we only make money when we sell our biggest winners. And that time is getting close for this trade.
No one can consistently sell tops, so that means every time we sell, we are either getting out too early or holding too long.
There are advantages and disadvantages to both approaches. But rather than pick one over the other, why can’t we do both? And that’s my favorite way to play these setups.
Take a little money off the table and let the rest ride. That’s the best of both worlds. No matter what happens next, I have a pile of profits if prices fall and I’m still in the game if the rally continues a little further.
That’s a win-win in my book.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.