By Larry Benedict, editor, Trading With Larry Benedict

Most investors are familiar with the common cliches about the markets.

Like only investing what you can afford to lose… or having a clearly defined exit strategy when a trade goes against you.

These adages have stuck around – because whether you’re trading on your own or running a billion-dollar hedge fund, one thing doesn’t change.

We all have a limited amount of capital. So no one can afford to let money slide off the table.

For example, some traders will close a position if a trade goes a fixed percentage against them – like 5%.

Others use a dollar-amount stop loss. For instance, someone with a $10,000 trading account might only allow themselves to risk $300 per trade.

However, it’s a mistake to think that risk management strategies only apply to managing losses.

Sure, capping losses is key to not blowing up your trading account.

But how you manage your winners is just as important.

The Market Has Changed

Some investors are still grappling with just how much the market has changed. Through 2021, investors could buy the dip and then hang on for the ride.

It often worked. We saw countless stocks make double- or even triple-digit returns.

But when markets are volatile, we have to take money off the table when we see it.

That same “buy the dip and hold” strategy will bury those same investors now. Letting their trades run won’t pay off in the same way.

After entering a trade that initially goes right, they hold on, expecting to see huge gains similar to previous years. And when a winner turns into a loser, they dig their heels in rather than jump out of the trade.

And in doing so, they can burn big holes into their account.

Instead, at The Opportunistic Trader, we aim to do the exact opposite.

We enter trades with strong setups and don’t let profitable trades turn into losers. We take the money off the table when we see it.

And while some trades have seen tidy gains, not all of them have been big winners.

Continuously Bank Your Winners

For example, in late May we closed out an options trade on Wynn Resorts (WYNN) that lasted just five days for a 41% gain. (You can read more about that in yesterday’s essay here.)

Earlier that same month, we closed out an options trade on the SPDR Gold Trust (GLD) for a 33.4% gain in about eight days.

And at the end of April, we closed out a Tesla (TSLA) trade for a mere 4.39% win in four days.

Those might not sound like jaw-dropping wins. But the key to successful trading is to continuously bank your winners, no matter how small or large.

Simply hoping for home run trades isn’t enough. Traders can only make what the market allows them to.

And small gains – even single-digit ones – all add up and contribute to your long-term success as a trader.

How you manage your losses is vital. But managing losses is only half of the equation.

Managing your winning trades as well will give you that extra edge as a trader.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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