VOLATILE MARKET ADVICE — TRUST YOUR WINNING TRADES
Posted by Chad Shoop | Mar 12, 2019 | Investing, Winning Investor Daily
A reader came up to me during our Total Wealth Symposium last September in Las Vegas. He caught me by surprise.
He told me he “just made $80,000” from one of my Quick Hit Profits recommendations.
What shocked me wasn’t the number, but the fact that it had just happened. We hadn’t closed a huge winning position in over two months.
I asked if he dropped quite a bit of money into one trade where we took a smaller profit.
But he’d only tied up $20,000.
He said the recommendation was on Illumina, a genetic research company.
My jaw dropped.
I had closed that trade out over two months ago for a 230% profit.
Personally, I thought it was an excellent gain.
It turns out I had made a big mistake.
My reader stayed in the trade and ended up with a gain over 400% the week before the symposium.
The lesson I learned from this trade was not to fear winning trades. And it’s become more important in today’s trading environment.
Let me explain.
DON’T BE TOO QUICK TO EXIT
With the Illumina example, I checked all the boxes for my system.
I entered at the right time and held the trade the ideal amount of time. The stock rose as expected.
Still, I made one huge mistake — out of fear, I exited too early.
In this particular trade, we had until September before the position expired.
But I recommended to exit and lock in a 230% gain in July.
That additional time allowed for the trade to rally significantly before the option expired.
In July, the stock started to dip, and I saw that my profits were slipping away.
My friend from the Total Wealth Symposium saw the same dip. But instead of sweating about losing his profits, he saw that there was plenty of time left in the trade.
In the end, it was an excellent call.
I got too tied up in my strategy and securing profits. While I feared my winning position, the extended time left in the trade gave it plenty of upside.
Now, not every trade has an expiration date like an option. But you will be tempted to exit when your profits start to decline.
TRUST YOUR WINNING POSITIONS
Fear is exactly what the market wants. Sharp drops occur to scare you out of excellent stocks.
That was the case for Illumina.
The stock experienced a sharp 5% pullback in one day. I locked in my profits.
Illumina’s stock went on to climb nearly 20% over the next two months. A 20% gain in a stock can mean a massive gain in call options.
But as my experience with Illumina taught me, trusting your winning positions can pay off big-time.
A few days after our conference, I recommended a put option on appliance manufacturer Whirlpool in July. And according to my system, the ideal time frame to hold the option was two months.
We were at the end of that two-month period, showing a 40% gain.
That’s not bad, and I, for one, am happy to grab gains on winning positions. But the gain had just started building in recent weeks. Exiting before October would mean cutting my gains short.
Instead, I remembered the Illumina lesson and trusted my winning position. By the end of October, we grabbed gains of more than 140%.
That’s a triple-digit move in less than a month — all because I trusted the momentum of my winning Quick Hit Profits positions.
Remember, your winning trades have rallied for a reason. You made an excellent decision jumping into a trade when you did. Don’t regret it by exiting the rally too early.
Right now, the S&P 500 Index has surged nearly 20% since the Christmas Eve lows. Many stocks are up 50% or more over the same period.
Sitting on quick profits like this in a volatile market may have you tempted to lock in gains and cash out.
Right now, it’s best to ride your winning positions through the market’s volatility and pocket the profit.
Chad Shoop, CMT
Editor, Automatic Profits Alert