The Invesco DB Agriculture Fund (DBA) has hit our short-term upside target. Traders should take profits on the position now.
Of course, the natural inclination is to want to stay with the trade. We’re profitable. The stock is moving nicely in our direction and has been since we suggested buying DBA nearly three months ago. All of the conditions that were in place back then are still in place today.
Why not just hang on and try to squeeze as much as possible out of the position?
The answer is quite simple… Because that was our plan.
As traders, before we enter any position, we ought to have a plan for when to get out of it. We should know where to take our profits if we’re right, and where to cut our losses if we’re wrong. And, we should stick to that plan.
You see, by planning the exit strategy before we get into a trade, we can do so without any emotions getting in the way. We don’t have money at risk. So, we’re not nagged by questions like, “But what if I sell and it keeps moving higher?” or, “What if I take a loss now, and then it reverses tomorrow?”
We set the plan, based on logic, before we get in. Then, we simply let the plan tell us when to get out.
For example, here’s the chart of DBA I showed you when we first recommended the trade…
In June, DBA had made a bullish move above all of its various moving average lines. And, the moving averages had crossed into a bullish formation. With the 9-day exponential moving average (EMA – red line) above the 20-day EMA (green line), and the 20-day EMA above the 50-day moving average (MA – blue line).
So, we figured the stock was headed higher up towards the next resistance area (the horizontal red line) just below $14.75.
Here’s yesterday’s chart…
DBA has hit our upside target. It’s time to sell.
It’s not time to rethink the trade. It’s not time to question whether the stock has further to run. It’s not time to wonder if our original target was too conservative.
It’s time to sell.
Then, once we’ve taken our profit off the table, we can set a new plan for a new trade if it makes sense to do that.
Best regards and good trading,
Jeff Clark
Reader Mailbag
In today’s mailbag, Robert shares his experience with trading, thanks to Jeff…
Jeff, I really appreciate your explanations about trading in Jeff Clark Trader and Market Minute. I’m retired from construction and trucking. Raising a family and helping my daughters get through college didn’t leave much disposable income for trading. I’m getting old and haven’t made my mark on the world, but I’m in love with the markets and trading.
I’ve read lots of books and watched the markets change over time. Once I get past some medical bills for my wife, I’ll try to follow some of what you have taught me and put enough cash aside to subscribe to your small-stock subscription. Options look complex to me, but I’ve seen the percentage gains on small stocks soar at times.
The importance of volume and being aware of “dark pools” hiding the volume is a concern to me… but the big traders may avoid the tiny stocks somewhat. I’ll try to find a niche where I can fit in anyway. My observation of markets over time backs up what you say, so I read and listen to you carefully.
I hope your boy Carson will pay close attention to you also. It’s really dry here in Western Nebraska (probably dry where you grew up also), and I buy hay from a farmer near me who’s almost 90 and he still loves farming. His grandson is taking over, but he works alongside him and guides him. Folks like him are becoming harder to find. Thanks again for the trading knowledge.
– Robert
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].