How To Triple Your Returns...

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Cut your losers quickly and let your winners run…

No ifs, ands, or buts about it.  If you don’t follow this rule, you won’t be in business for long.

You must cut your losers quickly when you’re wrong.  If you don’t have the discipline to sell when you should, you’ll end up taking big losses.  And the bigger your losses, the bigger your winners have to be to make up for it.

You also have to let your winners run as far as possible.  You never know when a stock will take off and turn into a huge winner.  You can take profits at a profit target... but sometimes it pays to hang on to a portion of your position.

Let’s look at an example…

Back in November 2009, I wrote an article about Coinstar (CSTR).  I won’t regurgitate the whole article, but the idea was to catch CSTR in a support zone setup.  The stock was trading down into the $25 support zone and looked prime for a bounce.

If you missed the article, you can find it here.

I recommended taking a partial profit at the $29 level and letting the rest of the position run.  Those of you who got in on this trade got a huge pay day…


Let’s say you bought a mere 300 shares of CSTR at the $25 support zone.  Remember, you can adjust your position size to your own needs.  Maybe you bought more CSTR, maybe you bought less.

Within the next month, CSTR jumps straight up to our profit target of $29.  If you stuck to the original plan, you sold 200 shares for a partial profit of $800 (200 shares X $4= $800).

But remember, you’re following the golden rule of trading…

Let your winners run as far as possible.  So you set a breakeven stop on your remaining 100 shares.  This is where the big money can be made…

Over the next month, CSTR traded back down to the $25.30 area.

But then CSTR goes on an amazing run…

It recently exploded over 100% higher from the entry at $25.  The company reported a blockbuster first quarter and blew analyst estimates out of the water.

Currently, CSTR is trading around $54.  If you’re still sitting on a 100 shares of CSTR, you have a $2,900 profit.  Add this to your original profit of $800 and you have a total profit of $3,700.

When we got into the trade, our chart risk in CSTR was only $1.55.  This means we were risking $465 in the trade originally ($1.55 X 300 shares = $465).

But now you’re sitting on a profit of $3,700.  This gives you a reward of 8 times your original risk of $465 ($3,700/$465=7.95).

Now, if you had sold all 300 shares the first time CSTR hit $29, you would have made $1,200.  This still was a good trade by anybody’s standards.  You pulled in over two times what you risked ($1,200/$465= 2.58).

But by following the golden rule of trading and letting your winners run, you tripled your return on the trade.

This is why following the golden rule of trading is so essential… cut your losers quickly and let your winners run.

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