How can one measure stock price extension?
In my view, decision-making in the trading business should rely on quantifiable data. A method I personally employ for scaling out and taking partial profits involves setting a threshold based on the multiple of Average True Range (ATR%) from the 50-day Simple Moving Average (SMA).
For instance, I find it beneficial to start taking profits when positions exceed 8-10 times the ATR% from the 50-SMA. This practice helps prevent second-guessing or becoming emotionally attached to any particular position.
A relevant example illustrating this concept is the case of $Palantir Technologies Inc.(PLTR)$ $SoFi Technologies Inc.(SOFI)$ $Tesla Motors(TSLA)$ $Vertiv Holdings LLC(VRT)$ $NVIDIA Corp(NVDA)$ which experienced a stall and subsequent decline after reaching 11 times the ATR% from its 50-day moving average.
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The advantage of utilizing ATR% extension for scaling out profits is that every stock exhibits unique behavior in terms of daily ranges and volatility. Employing ATR% extension as a profit-taking strategy provides a straightforward and quantifiable approach, allowing decisions to be based on statistical data rather than second-guessing individual charts.
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- yflaw·2023-06-22okLikeReport