What savvy traders are doing as we approach 4,600

By Jani Ziedins | End of Day Analysis

Jul 19

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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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About the Author

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.