The Dow Jones Industrial Average finally gave us an answer by pushing through to new highs (once again). As to the ever present question “what do I do now,” the answer is the equally consistent, “it depends.”
If you are new to the party or if you like taking pieces of a trend frequently, we suggest using a price target at some level above this most recent breakout. We like using the formula Recent High * (1+X%), where X = the percentage return level you seek. For example, if Recent High = 15,750 and X = 5%, the formula would look like this
Price Target = 15,750*(1+5%) = 16,537.5.
There are just shy of a million other ways to pick a price target and about the same number of different ways to actually apply said price target(s). The point, however, is you exit your trades at a pre-determined level.
Alternatively, one might consider trailing a stop behind the price action. The benefit of trailing stops, of course, is you have a better chance of staying around for more of a move. On the other hand trailing stops guarantee that you will always give up a substantial amount of your paper gains as price comes back and takes out your stop.