How to Handle Winners
The ability to handle winning is a very specific set of skills.
In sports, some coaches are fantastic at taking a down-on-its-luck team with no-name players and turning it into a contender.
But sometimes those coaches flounder when the team becomes a champion. They hate cocky star players and bristle at high expectations.
Other coaches are magnificent at handling superstars and love running a dynasty.
But sometimes those coaches don’t have the patience or the tools to start a team from scratch.
Trading is no different.
Some traders are great at buying no-name stocks way down in price and love holding them until they’re profitable. They have no problem waiting years.
But dealing with a stock that’s a rocket ship from the get-go can drive those traders mad. They have no idea what to do with a big winner. Sell now? Buy more on a pull-back? It can keep them up at night.
Other traders love rocket ships. Their whole trading plan is buying hot stocks on breakouts and taking big chunks of profit regularly. Or even riding that exploding winner to a big win.
Recently, we talked about Yum! Brands (YUM), D.R. Horton (DHI), and Pulte Group, Inc. (PHM).
Guess what? They’re all moving up nicely.
That’s good, right?
It depends on your style.
A value investor wouldn’t be comfortable taking those trades in the first place. He definitely wouldn’t be comfortable quickly taking a profit.
A breakout investor, though, is right where she needs to be.
And a breakout investor would be looking to take profit at around 20%.
For YUM, that would be around $160:
For PHM, that would be around $70:
For DHI, that would be around $120:
Trade the things you like. And trade them the way you like.
That’s the key.
Happy trading,
Scott
