What savvy traders are doing as we approach 4,600

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The S&P 500 added a quarter of a percent Wednesday as the good times keep rolling.

Headlines haven’t changed, and we continue coasting higher on recent employment and inflation data. At this point, reality is coming in far closer to the best-case scenario than anyone thought was possible earlier this year.

But for as good as this rally looks, 200 points in two weeks means we need to start watching our backside. The smart time to buy was back near 4,400, not now, as we are approaching 4,600. In fact, this is a far better place to be taking profits than adding new money.

Everything looks great, and that’s eactly why smart money is already peeling off some of their profits. As easy as it is to buy back in, we can always buy the next move above 4,600. But until that happens, we need to protect the profits we have now.

Once we acknowledge we can’t pick tops, the next decision becomes selling too early or holding too long. As a nimble trader, my preference is to sell too early because that means when other people are getting nervous watching their profits disappear, I’m in the perfect situation to take advantage of the next trade.

No doubt I’m peeling off profits too early, but as easy as it is to jump back in, my bigger fear is letting these profits escape. We don’t need to sell everything, but it is amazing how much better we feel after locking in some worthwhile profits and reducing our risk.

Remember, we only make money when we sell our favorite positions…

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