How to Hold a Winning Trade: The Two Keys
How to Hold a Winning Trade: The Two Keys
'Let your winners run'. A phrase you will hear in the trading world on a daily occurrence.
It really is one of the most commonplace statements traders and especially educators will make.
What's rarely addressed is the 'how'. It's actually very obvious that you want to make more than you lose. Lose small, win big and let your winners run. Everyone knows the rationale behind it. What is much more rare is an article describing the how.
I made a big discovery not too long ago. One really big winner can make your day, week, month or year. Obviously it depends a tad on the time frame we are talking about. In this article I will be addressing day trading, the most alluring component and time frame of the stock market.
Last month I would have performed only on an average level, had it not been for one day trade on Boeing.
This month, so far, is the same if not for DPLO.
I think a few months back; GPS was my big winner. Knowing which trade to hold and knowing why is a huge asset for day traders. Another Real Life Trader, Brandon, just emailed me that he made 37% on VRX in just one day! How? Because it was a massive winner and he let it run.
Here's how. And I am going to make this painfully simple and obvious.
Tell the stock exactly what you want it to do. If it continues doing it, hold.
That's really it.
In your trading career you have to come to the realization you have to be one step ahead of the markets. The only way you can achieve that is to trade yourself and not the market. Control yourself and not the market. Think in future terms, not the present.
To be perfectly honest, I totally missed the trade that Brandon took. He crushed VRX, and a few others did too. Jason, Timmy, Troy, but not I. We can't catch them all. I'll show you one of mine later, but let me give you an idea, likely, of what these Real Life Traders were thinking and how they knew to hold VRX.
Firstly, above was my daily analysis on VRX. All professional Real Life Traders have an idea of what the daily chart is doing, what the sentiment is, and they create a plan based on the daily. Personally, I trade gaps. 99% of the time, I trade in the direction of the gap. VRX was a very bearish gap, clearing a very obvious support, trapping any and all hopeful bullish traders who bought from March 1st through March 14th.
Anytime you are in a trade, continuation patterns should form. Volume declines in a continuation pattern. Expect continuation patterns!
Key #1 to holding a winning trade is saying to yourself 'In about 10-15 minutes from now I expect a continuation pattern. If the trade then breaks the continuation pattern and continues trading in my direction, I will keep holding.
Why 10-15 minutes? Honestly, it's slightly an arbitrary value of time, but give it a try! If you are trading the 1-minute charts, it might be more like 3-4 minutes of waiting.
Speaking of the 1-minute chart, here are the two obvious continuation patterns on VRX.
The very first one was a flag called out by Zane W in the morning room. A few traders hopped on. Why? Because the trade was doing what it was supposed to. Continuing.
There is a fine difference between letting your winners run and chasing a trade. This article is purely addressed to the trade you are already in. Knowing you've already missed the trade is simple. If you asked the question in your head or out loud 'Am I chasing this trade' or 'Have I missed this trade?â€ the answer is yes. If you have to ask, you missed it. Wait!
If you are looking to take a bearish day trade, be very cautious after it's formed 5-6 bearish candles in a row (on any time frame). The retest is coming!
If you are looking to take a bullish day trade, be very cautious after it has formed 5-6 bullish candles in a row (on any time frame). The retest is coming!
Above was my first winning trade of the month. Right at 5R (5%) gain on this in one day! 5R is about 1/2 of my monthly goal. Risk was $0.61 cents. This chart highlights almost my exact thoughts at the exact times on the trade. Each time I said out loud (therefore creating my plan) 'I want DPLO to trade down to the first target of $27.02. I will exit a very small portion of my position there, about 1/8th of my shares. Then I want to see some small white candles at the support. Then I want that support to break.â€ Bam. That's exactly what happened. I knew I had a winner on my hands. You can see how the rest unfolded.
It really is that simple. There's a very good chance you already KNOW how to trade, especially if you've been doing this for more than two years now.
If you start the 'hope' game, it's not a winner. If you say a prayer, it's not a winner. And I'm serious about that. I am not disparaging religion or spirituality of any kind in the least, but whomever you are praying to has nothing to do with the trade you are in. I can assure you of that.
Key #2 is time.
A Babe Ruth home run of a trade will always take longer than you expect or want it to. Know that going in.
Yes, ask a trade to do XYZ in zyx amount of time. But make that time longer than you are comfortable with.
Learning to hold a winning trade is honestly the same thing as building up a muscle. The only way you can build that muscle is begin holding trades, just a little longer than you already do.
If five minutes feels like a long time in your day trades, start by giving the trade 9-12 minutes to do what you ask it to do. If it doesn't, bail. That's fine. I always suggest cutting a losing trade quickly, but there is a difference between cutting a losing trade early and cutting a winning trade early because you are impatient.
Try answering these questions on any given trade you are in:
Is it still going in the direction I want it to?Does it show any reversal candlestick patterns?Am I down on this trade?Has the stock broken a specific price that I don't feel comfortable with it breaking?Has the stock broken a specific moving average that I don't feel comfortable with it breaking?
If you answer yes to any of these questions, chances are it's not a humungous winning trade. A great trade usually works, works well and works well immediately.
As well as I trade, I want you to know that month to month I usually only score 2-3 really nice sized wins. Those make the month. If I didn't have the gumption, foresight and discipline to hold the winners, I would be a subpar day trader. That's the honest truth.
We never know in advance which trades will be the huge winner, but you've got to start building that muscle! The only way we truly grow in this life is by doing something we've never done before. Being outside of our comfort zone. Stretching ourselves just a little farther each time, farther than we thought possible.
If we can do this Real Life Traders, then we can grow!
Grow those accounts, grow those muscles for holding the winning trade, follow your plans and until next time, remember, love life, life live and trade it!
-Jerremy Alexander Newsome