Daytraders - Ray Johns - 2.5% Trading System (daytraders.com)

Our 2.5 Percent Trading System is the result of many years of trading. This system has been designed and published here in an effort to help guide new, as well as experienced, traders in taking profits at realistic levels. We feel taking profits routinely is a very logical and straight forward method for being profitable in the markets when day trading.

For anyone that has traded the markets for any length of time, it doesn't take too much reflection on your trading activity to notice that, more often than not, after you purchase a stock you will see it spend quite some time bouncing back and forth between positive and negative territory. Often times you will see a stock move into the money, then pull back to either break even or a loss of some kind on paper. In most cases, at some point, this process will reverse itself and the stock will attract buyers and return to break even and/or a profit again (depending on your entry point and the quality of the stock itself).

So the question soon becomes: what is the best way to handle this situation to ensure that the least amount of time is wasted with stocks bouncing up and down, while at the same time working to produce the most realistically obtainable profits.

With our 2.5% Trading System, we submit that one of the most logical solutions to this situation is to discover at what level "most" of your trades become profitable. Once established, this level become your "profit taking point" where you either close the position out, or at least become alert to the fact that the stock is at a level where you may wish to sell it or install a trailing stop loss.

Before deciding at what level profits should be taken, let's imagine all of the trades we undertake on a line that travels from left to right. Each vertical "segment" of the line represents a specific trade and the up and down action of the vertical segment represents the action of the stock itself. We'll call the "zero line" the price at which you purchase the stock. From this point, some trades will go up (imagine a bar graph with the bar moving upward) while some trades will move down (picture the zero line (your purchase price) with a bar graph moving down).

Understand that the stock may go up and down within this vertical line for as long as you hold the trade. Baring any major down turns or up turns, you will have something that looks like the following: