Setting profit targets for your trades is like asking about pay and benefits when
applying for a job. You may end up earning more or less than expected, but you need to have an idea of what to expect.
Swing Trade: Taking Profits in the Value Zone This record of shorting VeriSign Inc.
(VRSN) comes from my trade journal. It was one of several stocks that developed a setup
for my “false breakout with a divergence” strategy. The last three days on this chart are
marked a, b, and c. On day “a” VRSN broke out and closed above resistance, marked by a
horizontal dashed line, while MACD-Histogram couldn’t even rise above zero. The next day,
marked “b,” VRSN opened below the orange line, showing that the previous day was a false
upside breakout (some would call it an upthrust). As soon as MACD-Histogram ticked down,
creating a bearish divergence, the pattern was completed, and I immediately went short.
VRSN kept sinking all day and closed lower. The next day, marked “c,” it tried to form a
base, and since the daily price was already in the value zone, I decided that it was
enough and covered my shorts. Taking an 82 cent profit on 3,000 shares brought in $2,460
before commissions. I could have made more by holding longer, but in swing trading, fast
quarters are better than slow dollars. Taking profits in the value zone reduces the level
of uncertainty and cuts the time your trade remains at risk.