Now I want you to sit back and imagine this…
You’re looking across a sprawling room full of traders. Some are standing with a phone to either ear, while others yell stock prices to colleagues. It’s a chaotic scene full of noise and activity.
Then, above the commotion, you hear:
‘Whoo! I just bagged the elephant!’
Clenching his fist, a young trader jumps to his feet. He then turns and high-fives a colleague. It’s the unmistakable sign of success. He’s just had the biggest win of his career.
You may recognise the scene…
It’s from the 1987 movie Wall Street. The film may be fictional, but it captures the look and feel of the dealing room perfectly. It’s a setting I remember well. I got my start in that very environment.
Now, the previous quote is from up-and-coming broker Bud Fox. You see, Bud had just landed his biggest ever client — the infamous Gordon Gekko.
In a moment, I’ll explain how you could bag the elephant. And no, I won’t be talking about winning a Gekko-style client. Instead, I’ll be telling you how to potentially land a triple-digit stock gain.
But first, think about this…
People often tell me that it takes expert financial analysis to make big profits. Others say you need a whiz-bang technical indicator to identify when a stock is about to rise.
But do you know what? They’re wrong.
You see, both of these methods centre on one thing: when to buy. And this is where many traders focus their attention. They believe the entry point is the most important part of the trade.
Now sure, entries matter. But they’re not the most critical factor. What really matters is your selling strategy. This has the greatest impact on your trading results. It’s the swing factor that I believe separates the best traders from the pack.
Now, I talk a lot about letting winners run and cutting losers. But many people do the opposite: they sell their winners early, and let their losses run.
You know, selling is a highly uncertain time for many people. They wonder if they should hold out for a better price or risk lower levels. The result is often smaller profits and bigger losses.
I’ll talk about exiting losing trades another time. That’s a big topic on its own. But today, I’m going to focus on selling a profitable trade. I believe that getting this right is one of the quickest ways to improve you trading results.
Okay, so I’m going to show you a trade from one of my trading systems. I sent this signal to real people via a trading service. It’s also an example of how I trade a big trend myself.
Check this out:This is the share price chart for a financial services business called Pinnacle Investment Management. Now, Pinnacle is a pin-up stock for trend following. And it shows why many of the best traders don’t set profit targets. Their strategy is to let profitable trades run for as long as possible.
The initial buy signal for this trade was at $2 as the shares were trending upwards. The eventual sell signal was about two years later at $5.76 — locking a gain of 188%.
Now sure, the entry points were good. But that alone wasn’t enough. The key to making a triple digit gain was resisting an early profit.
Ask yourself this: Have you ever sold for a quick 20% gain? I know I have. A quick-fire profit can be hard to turn down. But do you know what?
Traders who take small gains never get a Pinnacle. It simply isn’t possible. That’s because they sell their winners before the shares really get going. And this caps a trade’s potential.
A reason I often hear for quickly selling a winning trade is fear. People worry about giving back their profits. And I understand this — it’s no fun watching a good gain whittle away.
But here’s the thing: You have to risk losing a small profit to potentially get a larger one. There’s no way around this. The rewards for accepting this risk are trades like Pinnacle.
So that’s all for this week. If you liked this video, or even if you didn’t, scroll down and leave me a comment, or maybe a thumbs up. Also, if you’re watching this anywhere other than my website motiontrader.com.au then head over and have a look.
So until next time, I’m Jason McIntosh, and let’s find some trends this week.