Winners Don't Sell Winners

Sean McLaughlin
February 15, 2024

One of the things I’m trying to be better at this year is letting my winners ride.

In the past, I would often look to reduce my open risk in a winning trade too quickly because I was fearful of giving back hard won gains. I would let my emotions or my PnL dictate when I should exit a portion of a winning position.

Letting my emotions dictate anything is often a recipe for disaster – certainly for me.

Emotions are not an objective reason to exit a trade. We need to let PRICE tell us when our trades are invalidated or vulnerable. Price doesn’t lie, but emotions often do.

Easier said than done. Especially right now.

Warning signals are starting to pop up in a variety of corners, suggesting that the tremendous bull run that began in November may be due for a pause. Or worse, a correction.

This is not the type of info that makes me rest easy – especially when I’m sitting in a lot of long positions.

The good news is that I’ve got a bunch of open profits in these long positions that afford me the luxury to endure a pullback.

The bad news is that I don’t want to give up my gains! I’m greedy!

A significant way I am allowing myself the latitude to stick with these positions and keep my open profits at risk is to seek hedges in the form of bearish positions in other stocks that are already showing signs of weakness.

I mean, why sell something that is going up? Why fight that trend? I’d rather be on the right side of trends and get bearish in names that are already going down. Isn’t that what we’re supposed to do?

The profits I might earn on my bearish positions might not fully offset the giveback on any open profits in my longs, but they will surely take the sting out of any pullback, which is all I’m really trying to accomplish.

If I’m wrong with my hedges, the losses will be small by design. Meanwhile, my longs are likely to keep chugging along.

That’s how I strengthen my staying power.

How do YOU do it? I’d love to hear some of your ideas.

Trade 'em Well,

Sean McLaughlin
Chief Options Strategist
All Star Charts, Technical Analysis Research

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