Protecting the gains in a stock position is just good investing. You bought that asset to realize a gain at some point in time in the future. The current bull market is over 8 years in length and it has helped push asset values to new highs. So, you might ask “what type of plan should I have?”
My strategy is really very straight forward. The tools that I use have worked in the past and continue to do so. There is no need for me to re-invent the wheel, so to speak.
I’m going to present you with a case study of a company named Cutera. In 2016 you could have bought the stock between $10 to $15 a share. I’m not going to discuss how you made that decision, I’ll save that for another time.
Any time that you make an investment, you need to have a price target. I do this with the aid of point and figure charts. (To learn more about point and figure charts you can click here)
Point and Figure Charts
Most stocks go through periods of accumulation, that are often identified as a trading range. It is during this time that professionals have identified a reason to own that stock and they spend a period of time purchasing shares. They can’t do it all at once since they would affect the stock price, so they slowly accumulate shares in the stock. The trading range represents the Cause and the subsequent price movement the Effect. You need a sufficient cause to satisfy your objective.
What Cause Have I Identified With Cutera?
I now have a price objective!