It’s a typical issue for traders to sell their winning stocks too early. Even though minimizing losses is important, traders tend to apply the same rule when they see profits, which can cause them to take profits prematurely. While securing profits is a good thing, it’s essential to maintain a positive risk-to-reward ratio to ensure that your winning trades are bigger than your losing ones. Here are some strategies to help you let your winners run and minimize losses.

1) Analyze a stocks full potential before entering into a trade.

Before every trade I make, I have to be confident on how high a stock could rise. If I am unsure about where the stock could end up, I simply pass on the trade. To do this, I look for previous overhead resistance levels or measure the movement the stock has made in the past.

For example, one of my chatroom members brought UNCY to my attention.  After analyzing it more carefully, I anticipated that $2.11 would be the area where the stock could see it’s high of day based on the previous day’s movement.

After waiting for the right time to enter using one of my preferred entry methods, I alerted in the chatroom that I was going to buy over $1.73 with a stop at $1.59. Since $2.11 was the area I felt this had room to rise up to, this would give me close to a 1:3 risk:reward ratio which leads to the next method on how to let your winners run.


2) Use positive risk:reward ratios

On every trade I take, I always make sure I can potentially make more than what I’m risking. This involves setting a target price that is higher than the current stock price and placing a stop-loss order below the entry price. The stop-loss order will help minimize losses if the stock price starts to decline. By setting a profit target that is greater than the stop-loss order, I can ensure a positive risk-reward ratio.

Using the example above, If my entry was $1.73 and I used a stop of $1.59 then I would be risking 14 cents per share. But if my target was $2.11 then I would make 38 cents per share which is 2.7x greater than what I am risking.

3) Scale Out

A common mistake I see a lot of traders make is selling their entire position as soon as the price makes a downwards movement. I know it’s hard to hold a position through the ups and downs but it’s important that you always give your trade a chance to become a big winner. While you can hold the entire position until it reaches your target, sometimes selling a small portion on the way up can psychologically help you stay more patient.

For example, from the UNCY trade I called out in the chatroom, I knew $2.11 was going to be my final target. But as the stock was making new highs, I decided to lock in small portions of the trade just to make sure I would walk away with something if it didn’t reach $2.11. By scaling out, it helped me stay patient knowing I was walking away a winner no matter what.

let your winners run

By choosing to sell small portions as the stock rises while holding the majority of my position for the final target, it still allowed me to walk away with profit in case it didn’t reach my final target while at the same time giving the trade a chance to become a big winner. Since it did hit my final target of $2.11, which is where I sold the majority of my shares, it allowed me to walk away with a 1:2 risk:reward ratio.

In conclusion, selling winners too early is a common mistake that traders make, but there are methods to avoid it. By analyzing a stock’s full potential before entering into a trade, using positive risk-to-reward ratios, and scaling out of a position, traders can let their winners run while minimizing losses.