I think the old market adage, "Nobody ever went broke taking profits" is a market truism that helps remind investors of the number one reason for being in the market: to MAKE MONEY. It is impossible to truly make any profit in the market unless you pull the trigger and sell some of your gains at some point. This of course leads to the problem of trying to 'time' or 'predict' the market, or making up an arbitrary profit target such as 25%. This is one of the first things my mentor told me when I 'chumped'(sold too early) a trade and took my gains way too soon. It has taken me years of trading to understand the importance of locking in gains on your profitable trades and on the flip side, cutting your losers short when they turn sour.
My personal style of trading involves targeting undervalued companies at a price target and I scale into my position when the stock reaches that price target. I typically buy in 3-4 separate purchases, ensuring a good overall price. I typically sell in at least 2 different orders as well, to try and get a good average price exit. The counter argument to my style is that you should just buy once and sell once at the best prices, but in my experience this is much easier said than done and I have had better results with using my scaling technique. I think it is too hard to time the market anywhere near perfectly, and using my technique will allow you more leeway to maximize your profits and limit your losses.
Another tactic I have been using more recently is to leave my profits in a winning trade in that stock. For example, If I decided to trade Google, and I was up 25% in three months time, I would sell my original investment and leave my 25% profits as Google stock. This does a few things for my porftolio and overall strategic allocation. Now I have shares of a company that I never plan on selling to add diversification and potential growth to my portfolio. For every successful trade I complete using this strategy I add more diversification and another potential long-term winner to my portfolio of stocks. One of my favorite types of investments to employ this strategy on are dividend payers that have a strong business model, which then provides you with a lifetime income stream to invest as you see fit. If you have a long investment horizon, then I believe this strategy would help you become very diversified across many sectors, industries, countries, etc as you reach closer to your retirement age. This would help you weather severe downturns and abrupt changes in any individual markets.
In addition, there is nothing saying you can't revisit a trade you have already successfully made, and currently hold "profit shares" of. If the price reaches an undervalued level again, you can re-enter that trade and attempt to 'capture' more shares. One of the side-benefits of this strategy is that you keep your eye on many different equities and investments that you at one time thought were a good buy, prompting you to at least do some homework on them if you see a future opportunity in that issue. An obvious side-effect of this strategy is that you are going to cash out your gains(hopefully) when the underlying stock/sector are hot, and leave your "profit shares" to potentially languish or even lose value as you look towards the next opportunity. This helps to act as a hedge over time and help discourage you from "putting all your eggs into one basket" and risk too much of your net worth in a single hot investment.
As a disclaimer, this is a strategy that I have found to be worth employing in certain instances and may not be right for everyone. Individuals have their own risk tolerances and trading styles that they need to find in order to be a consistently successful trader. I wish only to offer strategies and ideas to stimulate investors thought process and point them in directions that may be beneficial to them.
One last quick note on something I have found to be a solid market wisdom. When in doubt of whether or not to take profits, sell half of your position, and be patient. You can always put on the trade again if the market tells you to or if something fundamentally changes in the stock.
Disclosure: No positions