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

Like only investing what you can afford to lose…

Or how you must have a clearly defined exit strategy when a trade goes against you.

These adages have stuck around.

Because whether you’re trading your own private account or running a billion-dollar hedge fund, one thing doesn’t change – we all have a limited amount of capital.

Meaning, 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 the common dollar-amount stop loss.

For instance, when someone with a $10,000 trading account only allows themselves to risk $300 per trade.

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

While capping losses is key to not blowing up your trading account – how you manage your winners is just as important.

With the markets as volatile as they are now, we must be ready to take money off the table when we see it.

You see, some investors are still grappling with just how much the market has changed…

Up until 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 as I wrote in last week’s essay, using that strategy this year has buried those same investors…

Not just by letting their losing trades run, but also by how they manage the profitable ones.

After entering a trade that initially went their way, they blindly hold on expecting to see similar gains to previous years.

So, when a winner turns into a loser, they dig their heals in rather than jump out of the trade.

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

Instead, at The Opportunistic Trader, we’ve done the exact opposite with my options trading service… allowing us to bank 13 winners in a row.

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.

For example, in late May we closed out an option trade on Apple (AAPL) that lasted just three days for an 80% gain.

Shortly after, we closed out an option trade on Block (SQ) for a 3% gain.

After six days in the trade – and with a key piece of economic data about to be released – we locked in a profit barely above breakeven.

Still, the key to successful trading is to continuously bank your winners no matter how small or large.

Simply hoping for homerun trades isn’t enough in this market.

Traders must understand that they can only make what the market allows them to.

Small gains – like the 3% we made from SQ – all add up in the long run and contribute to your long-term success as a trader.

When markets fall as heavily as they’ve done this year, how you manage your losses is important.

But managing losses is only half of the equation.

Equally focusing on how you manage your winning trades will give you that extra edge as a trader.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

How have you been managing your gains and losses in this volatile market?