How to manage positions

In the market, many people focus most of their energy on "how to buy" and "what to buy," but overlook the more critical part—how to exit. The entry point determines whether you can make money, while the exit strategy determines whether you can keep that money. As the saying goes: Not selling at the high is the same as not rising.
As mentioned before, what often causes an account to collapse is not stock-picking ability but position management. Technical position reduction and stop-loss help us define the true boundaries of trading.
I. Three Types of Exits
Selling is not one action but three entirely different strategies:
1. Profit-taking—Lock in partial profits. The goal is to gradually secure gains during an uptrend without chasing the top or making predictions.
2. Stop-loss—Limit losses to a minimum. Mistakes are acceptable, but they must not be allowed to escalate.
3. Position reduction—Lower overall portfolio risk to improve the risk-reward ratio.
These three have different logics and purposes, so their strategies should never be mixed.
II. How to Take Profits
1. Trend-based targets: Let profits run but remember to secure them in batches. Don’t sell too early, but don’t hold all the way to the end. A common trend-based profit-taking method is dynamically adjusting stop-loss levels as prices rise. The key logic is to allow profits to expand freely but exit when prices fall, minimizing profit retracement.
For example:
A 20% rise → Raise stop-loss to the previous pullback low.
A 30% rise → Raise stop-loss to the 10-day moving average.
A 50% rise → Raise stop-loss to the 20-day moving average.
2. Sentiment-driven targets: These are generally cases where profit-taking occurs upon reaching a target. They apply to highly volatile, narrative-driven sectors like semiconductors, cyclical stocks, and thematic plays, which often experience sharp rises and falls. Two common profit-taking logics apply here: selling in batches near technical resistance levels (e.g., previous highs) or setting a fixed 20%-30% profit-taking level in advance.
3. Common mistakes: Worrying about selling too early and missing the peak. This is understandable—many want to predict the top, but it’s nearly impossible. The most important thing is to set rules.
For example, after reaching a high, observe moving averages to decide whether to sell:
Break below the 5-day MA → Strong pullback → Reduce position.
Break below the 10-day MA → Short-term trend broken → Sell half.
Break below the 20-day MA → Medium-term trend weakening → Exit entirely.
III. How to Stop Losses
First, emphasize the ultimate purpose of stop-loss: ensuring you stay in the market forever.
1. Three stop-loss triggers: Structural breakdown, false breakout, and unfavorable risk-reward ratio.
Structural breakdown is easy to identify—when key support levels (e.g., previous lows, trendlines) are breached or short-term moving averages are broken on high volume. Once structure breaks, the trend changes. Next, watch for failed moves after false breakouts, most commonly double tops. Finally, monitor the risk-reward ratio of stop-losses. If the stop-loss is 10% below but the upside is only 5%, it’s not worth holding.
2. How to implement quantitative stop-losses:
Two common methods (choose based on preference):
① Fixed stop-loss: Simple and brutal but effective, usually around 5-10%.
② Volatility-based stop-loss: Place the stop-loss 2-3% below support.
IV. How to Reduce Positions
Position reduction effectively balances profits and risks, trading some gains for safety. A friend of mine barely trades—his only reduction strategy is to sell half when hitting preset profit-taking or stop-loss levels. This is one of his most effective ways to reduce volatility. Though simple, it achieves the four key goals of position reduction: locking in profits, lowering costs, optimizing risk-reward, and calming emotions.
Common three-stage reduction method:
① Initial phase: The trend has just started—hold positions to secure future gains.
② Acceleration phase: When prices surge and volume spikes, institutions start unloading in batches.
③ Final phase: Consider reducing if prices spike vertically, sentiment peaks, or positive news floods in. As The Wisdom of Trading says: When everyone on the street talks about how to make money in stocks, the market is usually at or near its peak.