When do you take your profits?
Seriously… when?
Do you take profits when you’re up 20%? More? Less? How do you decide when you’ll sell?
This is one of the biggest problems I see with most investors… They have no plan for when they’ll sell. This, of course, leads to bad selling decisions.
They’ll lock in profits on a panic day because of fear. Or they’ll hold onto a loser far longer than makes sense because of hope. But fear and hope don’t qualify as a selling plan.
Today, I’ll show you what you need to know to maximize profits on your trades.
[ad#Google Adsense]Specifically, I’ll walk you through a recent trade in my newsletter, where my readers made 542% in just over 10 months. Let’s get started…
Exactly 355 days ago, I told readers of Phase 1 Investor, Stansberry Research’s exclusive microcap advisory, about a small gold mining company. The company, ATAC Resources, had discovered a gold project up in the Yukon that had good potential.
I met company management in Vancouver, back in 2006. It’s run by a group of excellent geologists. Their collective experience in the Yukon spans a century.
As a geologist myself, I understood this was a big discovery. So I recommended it to my readers. We bought around $0.88 per share on October 29, 2009. Importantly, starting from the very first day we bought it, we had a “sell” strategy.
In this case, I set a 50% trailing stop in case I was wrong (which meant we were prepared to lose half our investment before we sold). The huge potential reward made up for that level of risk.
The stock took off… As you can see from the chart below, we made a nice initial gain when the stock bounced up to $1.50 over the first three months. That was a 70% gain.
Many investors (particularly those without a plan) would have sold then and there. They’d be ecstatic with a 70% gain in three months. They would take that cash off the table happily.
But I knew the 2010 drilling season hadn’t even begun. I knew the 70% gain so far was just other investors hearing the story and getting excited. I knew the big potential was still coming. So I kept my 50% trailing stop in place (in case I was wrong) and sat back to watch.
By mid-July, we had a 125% gain. Again, there was that temptation to sell… Your mind whispers in your ear, “Why be greedy? That’s a heck of a gain in less than a year. I’m satisfied.”
But again, I wasn’t “satisfied.”
I knew only half the drilling program was complete. I knew less than a quarter of the analyses on the drill cores were done. And I saw the rock…
I met with ATAC’s CEO at Agora Financial’s Investment Symposium in July. He showed me two blood-red rock samples… Those minerals rarely occur outside the Carlin Trend in Nevada – one of the world’s richest gold-producing regions. One end of his project was covered in the stuff.
By late August, drilling confirmed it… ATAC had discovered a Carlin-style gold deposit in the Yukon. The company’s shares suddenly grew wings and soared. They rocketed from $1.85 on August 19 to $7.22 on September 7. That’s 290% in just over two weeks.
During that incredible run, I tightened the trailing stop from 50% to 25%. In time, I tightened the trailing stop to 10%.
At this point, all the good news was priced in. But we didn’t have to sell there. With a 10% stop, we could capture gains if the stock went even higher. Ultimately, we were stopped out at $5.65 on September 8, 2010 for a 542% gain.
The secret to our success was simple. We had an exit plan, all the way.
We didn’t just quickly accept a modest 70% gain when it appeared. We had the conviction to stay with the trade. We used trailing stops the entire way so the market could tell us when to exit the trade.
Look, you only get a handful of opportunities to book triple-digit winners in your lifetime. Think about it this way: You’ll never pocket a triple-digit winner if you take a quick profit at 20%.
You’ll never make 542% on a trade by cutting your winners early.
So the day you enter your “buy” order for a trade, make sure you have your “sell” plan in place, too. And if you want to make a 542% gain in your own account, make sure your sell plan doesn’t include taking profits early.
You see how it worked with ATAC. You know what to do… Now it’s your turn to make your own triple-digit winner.
Good investing,
Matt Badiali
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Source: Daily Wealth