How to Let Your Winning Stocks Run [Detailed Guide]:
Do you have trouble letting your winning stocks run? Well, one of the best parts about trend following breakout stock picks is that you can get some BIG winners.
Instead of selling too early, you can get trades like this one:
Wouldn’t you LOVE to own a stock like this?
Or how about Ferrari? (First featured here)
But we don’t have to stop there.
Look at this chart of CBOE which has been trending higher since I bought it months ago.
Not bad, right?
These kind of stock picks are profitable AND easy to trade.
“You just need to know a few simple tricks to help you let your winning stock picks run!”
Because holding onto winners like this is what can really transform your trading P&L
And truly, this is just the tip of the iceberg!
I’m not showing you these winning stock trades to brag… BUT, to show you it IS possible to find big price moves to profit from.
And by the way:
But if you’re still feeling skeptical about this approach, let’s look at some more (less obvious) benefits of letting your winning stock trades run.
After that, I’ll show you the tools and tactics I use to hang on for these huge trends.
Now, let’s dive into the fun stuff…
Why Should You Let Your Winning Stocks Run?
Of course most traders want to let their winning stock trades run so they can make more money.
That’s reason number ONE, and it shouldn’t come as a surprise.
There are many other great reasons to use trend following trading strategies to hang on for the ride while your stocks move higher.
Lower Commissions: Holding your winners longer means that you’ll be placing fewer trades. And that means lower commissions!
Now sure, this isn’t exactly glamorous and I imagine some of you adrenaline-addled, trigger-happy traders actually see this as a downside.
But if you’re trading for excitement maybe you’d be better off rock climbing or skydiving.
“Because the immutable truth of the matter is: commissions cost you money!”
And by paying less cash to your broker, you keep more of your cash for yourself.
It’s an undeniable fact!
This is especially true if you’re trading with a bank or full service broker who is charging you more than $5 or $10/trade.
And in particular…
Newer traders with limited capital should also take notice: commissions will eat up your gains, even if you do pick winning stock ideas.
Lower Stress: The truth of the matters is that letting your winning trades run is a relatively relaxing way to trade.
That’s because after you find a stock to buy, you simply get out of the way and let it trend up!
You don’t have to worry when to sell or whether you’re going to leave a bunch of money on the table.
Just follow your trading system and watch the gains accumulate.
Fewer Chances For Trading Errors: I think this is a particular risk for new traders. It seems that when you’re new to the game you feel the incessant urge to do something!
But this is a BIG mistake (especially) for new traders.
The reason is each time you place a trade, there’s a chance you’ll make a mistake. So by definition, if you reduce the amount of trades you place, you’ll be less likely to make mistakes.
And let me be clear: trading mistakes can be very expensive! Whether it’s selling too early, ignoring your stops loss or going all-in on margin, the wrong trading error can be a disaster to recover from.
In a lot of ways, you can think about trading like golf or tennis. The more unforced errors you eliminate, the better your chance of winning. If you’re unfamiliar with this line of thinking, I highly recommend the book, Winning the Loser’s Game.
It’s Easier! You know what happens when you trade less, make fewer mistakes and let your winners ride? Trading becomes easier!
Of course this isn’t a cure-all to your trading troubles. But it’s a great start. Just look at the big winners above, or this chart of APH below.
Can you see how much easier it would be to just profit from a trend like this, rather than try to pick every high and low along the way? And not only is it easy…
Less Time Needed: Along with an easier and lower-stress trading day, you’ll also find that letting your winners run means you spend less time babysitting your account.
I don’t know about you, but I value my time with friends and family. I’d rather relax with them than sweat over a screen all day!
Dividends Boost Returns: Finally, one of the great benefits of holding on to your winning stocks is that you collect dividends.
While the gains aren’t always huge, they certainly don’t hurt! It’s free cash in hand that helps cover commission costs and increase your returns.
Now to be honest, there are probably even more benefits to holding winning trades. But…
Hopefully by now you’re starting to get the idea: holding your winning trades is worth it!
And it’s not even THAT hard.
So why don’t more traders hold on to their winners?
Great question. And the reason are even MORE fascinating.
So let me quickly show you how to get out of your own way and FINALLY let those winning trades really work for you!
How to Conquer the Hardest Part of Letting Your Winners Run:
So given all the great benefits of letting your winning stocks run higher, why don’t more people do it?
Well, on one hand, I think young wanna-be-Wolf-of-Wall-Street types imagine you need to be flipping stocks every five minutes to make a profit.
But digging deeper…
I think the main reasons traders take their profits off the table too early is because of lack of patience!
Maybe you’re afraid to give back open profits, maybe you want to lock-in-a-profit or maybe you want to sell your stocks to take advantage of another opportunity.
But let me tell you, whatever emotional urge you’re feeling to sell your stock, it’s probably wrong!
And this is also the reason why I ALWAYS have a plan for exactly when to sell my stock, before I enter the trade. Make sense?
But more importantly…
My plan for when to sell uses a key tactic that keeps me in my trade and maximizes the chance of letting winners run.
… so do you have any guesses as to what that tactic is?
Well… lucky for you… I’m about to show you what it is right NOW.
Just keep reading!
The One Simple Key to Holding Your Winning Stocks:
Lucky for us, the desire to let winning stocks run isn’t a new one.
Way back in the early 1800s, David Ricardo proclaimed: Cut short your losses; let your profits run on.”
And since then, traders and brokers have come up with many different tactics and tools to help you maximize your profit potential while capping downside risks.
But personally, my favourite tool for this is a very simple invention: the trailing stop loss!
If you don’t know how it works, don’t worry. It’s VERY simple!
A trailing stop loss is kind of like a ratchet.
You place it when you enter your trade… and then… it follows your stock as it inches higher.
However, if your stock starts to pull back, the stop loss stays put (…until it eventually gets triggered).
“This mechanical approach takes the emotion out of your trade and gives you practically unlimited upside!”
… So what’s not to love about that?
Of course there are details…
- Does your stop loss trail in real time? Or using a closing price?
- How much do you trail it by?
- And do you use the same approach on all of your trade?
How you answer these questions will depend on your own risk tolerance and trading time frame.
Because I mostly trade from weekly charts, I trail my stops on a weekly basis.
But at this point, it’s the overall concept I encourage you to focus on!
Another Tactic To Help Your Winners Run:
This next trading strategy is counter-intuitive, but I’ve found it to be true in my own personal trading experience. So I’ll share it with you.
And as you might expect, it requires you to do things a little bit differently.
You see many new traders end up putting all of their capital into one or two single stocks. But don’t get me wrong, I get it.
When I was first starting out building my trading portfolio, this is exactly what I did too. I understand…
It’s inevitable at the very beginning when you first open your brokerage, and you may not have that much money on hand.
But… as soon as possible…
You really should start building up more positions. I truly believe it’s better to have more small positions, than a few huge positions.
And there are two key reasons for this.
… Do you know what they are?
The first one is a huge psychological benefit. Because even if you only have 5 small positions of $500 each, I guarantee you’ll sleep better at night than if your ENTIRE $2,500 of savings is tied up in one volatile OTC stock.
And I think there’s value in that.
But even though a little diversification can lift a massive mental weight (especially for active traders and investors), it’s not the only reason I encourage you to buy more small positions.
Because the second key reason to use this diversification strategy is because you’ll also start to learn how to manage a portfolio of stocks.
“Think bigger picture than your next trade!”
Instead of tying your fate to a single security, spread the love a bit and accumulate a handful of positions.
Buy stocks in different industries, sectors and market caps to get a feel for the benefits of diversification.
And by the way…
This also gives you an opportunity to test your ideas on a smaller scale, where the impact of loss is MUCH more manageable.
You can learn to take small losses, and learn to add to your winning positions.
Think big. Start small. And act now!
It’s the best way to learn in my opinion.
Because no matter how many investing books or trading blog posts you read, there’s no replacing the experience of buying stocks and watching them change in value.
Getting comfortable with this ebb and flow is very helpful in letting your winning stocks run.
It also gets more and more applicable as your net worth grows over time!
Now before we wrap this up, let’s talk about one more common trading tool: price targets.
Why Price Targets May Not Help Your Winning Stock Trades:
Imagine your boss calls you into his office and says he wants to give you a raise.
Now let me ask you..,
Would you tell him the most you deserve to earn is an extra 10%?
Probably not, right? And yet new and experienced traders alike commonly use price targets to help them exit their trades.
Now personally, I don’t like to use price targets myself…
Well, in my experience you’ll find that every now and then, one of your stock picks will go up MUCH more than you’d have thought reasonable.
I rode shares of Ferrari from around $55 to over $108 dollars.
This is almost a 100% capital gain!
… But you know what?
If I’d imposed a profit target and sold my stock after it went up 10%, I would have left a LOT of money on the table!
And the thing is…
These unreasonable gains can make a HUGE impact on your bottom line.
They can really pad your profit margin… and pay for many losing trades.
Without these big winners, trend following breakout stocks would NOT be profitable.
So that’s why I don’t use a price target.
But on the other hand, I do appreciate why shorter term traders like to use them.
So let’s quickly look at a few strategies you can use to leverage the discipline price targets can provide, without giving away all your upside optionality.
Two Tips for Protecting Profits with Price Targets:
Even though I don’t use price targets, I understand the appeal, especially for short term day and swing traders.
Because on these shorter time frames, the increased volatility can quickly wipe out open profits in your stock portfolio.
These quick price reversals can make it VERY frustrating to try and let your winning trades run.
… so what’s a swing trader to do?
Well, here are two tactics that might help you:
First, you may want to decide to sell half or a third of your position once you have some open profits.
By cashing in some of your winnings, you may increase your profitability in the case of a reversal.
And just as importantly…
You might find this makes it psychologically easier to let the rest of your winning trade run higher.
Because… since you already rang the bell… it’s like you already won!
Even if the stock reverses you can still feel good knowing your trade idea was a good one and you made the most of a tough situation.
This kind of mental detachment can make it MUCH easier to let the rest of your winning trade run higher.
I think this little tactic is definitely worth a try if you’ve never had luck maximizing your winning stock trades.
… Now for the second price target tip I promised you:
Okay, so while it might help you to sell half or a third of your swing trade once you have a profit, I strongly discourage you from making this a discretionary decision.
I’ve personally had more luck when I come up with simple trading rules I can follow to guide my buying and selling.
And where possible, I really encourage you to make these rules as objective as possible.
That way, when you’re in the heat of the moment you don’t have any confusion about what you need to do.
You could make a rule to sell half your position when the stock goes up 25% or 50%.
“It’s almost like you’re rebalancing your portfolio to redistribute your winnings!”
On the other hand, I would NOT use a rule like “sell half of your stock when it hits resistance.”
That’s because this is just a little too vague. And you may have trouble implementing it when emotions are running high.
If you ARE going to use a rule like this, it’s probably best to define the specific resistance level you’ll sell at. Sound good?
This way there’s zero ambiguity about when to take action.
Be mechanical, and you might find it’s easier to stick to your trading plan, and let your winners run.
Now I know we’ve covered a lot of ground today.
So let me leave you with a few final tips to help you put these ideas into action and increase your chances of riding winning stock trades!
Conclusion – Use These Actionable Tips to Let Your Winning Stocks Run So You Can Catch BIG Trends:
By now, I hope you appreciate the advantages of letting your winning stocks run.
If not, spend some time learning about trend following returns. Understanding the basics of this strategy really helped me let my winners run.
- Try using a trailing stop to protect your downside and unlimit your upside
- Trade smaller positions, and learn to cultivate a portfolio of winners
- Experiment with longer trading time frames
- Don’t be afraid to paper trade new ideas to test them out
- Be careful with profit targets
The main thing to remember is a stock can’t give you a 100% gain if you sell it after a 10% rise.
Remember Jesse Livermore: the big money is always in the sitting!
Finally, if you want even more ideas for how to improve your stock trading, just drop your email in the form below.
That’s because I’ve packaged the rest of my trading approach into a free 12-page mini course. Can you just tell me where to send it?