FIT GUIDES: TAKING PROFITS

Profit taking.

When do you do it? 

How you do you know when a player has finished rising and might drop?

Knowing when to sell players is harder than knowing when to buy them in my view because:

a) Once you are an “owner” most of us will to varying degrees get emotionally attached/defensive about our decision.

b) it is human nature to be greedy and get attached to players that have done well for us;

c) it’s hard to tell whether sticking with a player through a bad patch is patience or stubborness.

There isn’t a single answer to dealing with this effectively. So I’ll discuss two different methods for dealing with this challenge and then explain which I use and why. 

An Intervals System

This is a fairly strict method that can really benefit people who find they keep taking losses (or have a stagnating portfolio) because they hold players too long.

It can be particularly good at keeping less experienced or less disciplined traders out of trouble.

If you struggle to sell because in the back of your mind you are thinking “but what if he does score next game?” or “but what if he does get that transfer to Manchester United?” this might be for you as it can inject some discipline into your trading.

Let’s say I buy a player at £2. I’m confident in him and I think he may rise to around £2.75 or even £3 if his quality shines through. I could set myself some sell points ahead of time and stick to them:

Sell 100% at £1.75 

Sell 25% at £2.25

Sell 25% at £2.50

Sell the final 50% at £2.75

In this trade, I plan to enter at £2 and exit at £1.75 if it goes badly and limit my losses. I won’t waste energy agonising over whether or not I am right and I won’t waste time calling everyone who sold an idiot on Twitter, I’ll just come out. 

If it goes well, I will gradually take profits and bank them as the price rises. This protects me if the price goes down again because I will have already locked in some profit.

By the time I hit my target price of £2.75 I have stuck to my system and sold up. No sweating over whether he will get that transfer or score that goal. We have locked in profits and put them into something else.

If a fact changes and we have a real reason to think we can get £3.50 out of him then we could amend our sell points

But, the real value in this system is for people who want to inject some discipline into their trading and spend less time agonising over whether to sell or not.

Because you are regularly locking in profits, you will reduce the number of losses you take over time. Of course, you will occasionally get those moments where a player you sold happens to get a big transfer link and you miss out.

This is absolutely fine.

Most transfer hype stories come to nothing and most hyped players are not as good as they are made out to be. 

We are putting ourselves on the right side of probability here and, over a season, that will almost certainly pay off.

The drawback to this system however is that you can pass up opportunities to keep profiting from the trends, so it can be a less “strategic” approach.

For example, I may well have a player who I believe is now more expensive than he really has a right to be based on potential returns alone. But, looking to the trends ahead, I may believe I can achieve a higher price in the coming months regardless.

Trend Driven Selling

Basically, this is about riding price increases as far as you think you can get away with. 

There is no rigid “system” here. No single trigger point at which profits are locked in. It relies on a trader’s discipline and their week to week judgement being correct.

If this sounds like the trader is winging it, it’s because they kind of are. You can make this work really well though if you: 

– Are very confident and competent at reading the market trends;

– Know what the player is really worth in current/potential dividend returns;

– Know what other people are willing to pay for certain types of player once they know they are good quality.

With this method, a trader is almost like a farmer planting seeds at certain times of year and then having a “harvest season” when he sells.

Let’s take last season as an example.

I picked up a number of youthful, attacking players that were strong trend fits in pre-season and early-season. I was selective based on quality and price to maximise my chances of getting good players cheaply (this will deliver better results than the guy who just buys everything aged under 21 – I don’t have to spread my money that thinly). These were my “seeds” – there might have been around 10 of them.

As the season wore on, some of them broke out, others ended up being mediocre. It was a particularly good crop. Joao Felix, Kai Havertz, Thorgan Hazard, Bruno Fernandes were all in there as the best of them. Others were disappointing (Savic), took a long time to get attention (Fabian Ruiz) or just didn’t succeed (Solanke).  

As the season wore on I pruned away the weak players, freeing up cash to double down on the strong ones.

Some of the strong players like Havertz or Felix were pushing insane prices by February time. I could have sold then. If I was using a strict system or using only dividend returns vs price alone, I definitely would have. Certainly, I knew the price was being fueled by hype more than ability in almost all cases.

But, with transfer speculation for some of them, I knew traders would be likely to keep piling in. Traders obliged me and by May they really were running frankly insane prices which is when I sold.

Why? Because these players were being hugely overvalued due to transfer hype. It was time to sell because we had reached a point where the hype was ending and I did not want to stick around to see whether the transfer really happened. That money was shifted elsewhere to plant another batch of seeds because I saw another trend shift underway which became the site Summer Strategy (that’s in the members area).

Largely, the price of these players stagnated or dropped in the following months because they were much too far ahead of their “true value” (which I’ll discuss in the next guide). But by timing my sale at the peak of their hype, I was able to exploit the over enthusiasm of other traders.

It is easier for me to predict trader behaviour than it is to predict transfer outcomes, so that is what I took advantage of. I do not usually place bets that are completely dependent on a specific event like a transfer happening – that’s a mug’s game you can do at the bookies.

This method suits traders with very strong market reading skills who have emotional detachment and don’t get upset by any short term drops along the way. They also need discipline and won’t struggle too much with those “But what if I sell and he scores next week?” or “But what if I sell and he does go to Man. United?” questions.

The drawback of this is that it puts a lot of pressure on your ability to read the market and be right far more often than you are wrong. It’s not easy.

Last Word

So, of the two techniques for selling described above, which do I use?

I use the second option – trend driven. I spend a ton of time looking at the market and analysing every game so I have the information, skills and the time to do it. 

If that sounds like too much hard work, this kind of information is exactly the sort of thing I share with members every single week in the members area and you can check that out here. I share an overall “Key Strategy” with members covering each phase of the season, then discuss the progress weekly in the members State of the Market articles to respond to events along the way.

Which of the two methods above is better? That’s perhaps the wrong question and I think it is more:which method is better for you?

I think in the current market which is very volatile and trend driven, the trends method I use is probably the optimal one. But you do have to be good at it, you can get it badly wrong. 

By contrast, the intervals system is very simple to use and is a great way of injecting discipline into your trading. So if you find you take more losses than you like, or hold onto fusty players too long in general, this is definitely worth a try.

This method will also likely be used a lot more often, including by me, when and if Order Books are introduced to FI.

It’s also important here to really understand what value is and what makes a player under or over priced, which I’ll cover in the next guide.

 

For the next part, click the topic in the scrolling images below!

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