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We all get attached to a stock at some point.

Like a close friend, we cherish our time together, never believing it would do us harm.

Yet, like a wine left in the sun, they sour on us.

Which begs the question…

How do we know when it’s time to part ways 

with a favorite stock – one that’s been true to us for oh so long?

There’s a few tricks I’ve learned over the years to unlock this mystery. 

Some obvious, some not so obvious.

In fact, I want to explain it through one of my favorite stocks – ROKU.

Last year, this stock paid out tens of thousands of dollars in Weekly Money Multiplier profits.

However, its been a different story in 2020…

What are the signs it’s time to let it go?

{SPOILER ALERT} When the trend changes…

 

The trend is your friend until it ends

 

As a momentum and swing trade in Weekly Money Multiplier, I rely on clear, identifiable trends as a core part of my TPS setup – hence the ‘T’.

Take a look at this daily chart of ROKU that extends back through last year.

 

ROKU Daily Chart

 

On the left, the white arrow pointing upwards identifies a clear uptrend in the stock. When I swing trade, I want to line up with this. Otherwise, it’s like swimming upstream.

In the first white box to the bottom left, you can see how the stock dropped into a previous area of churn and slingshot back in the other direction. The same thing happened in the box above that on an intermediary pullback.

When trading with the trend, support levels get bought up.

However, when the trend changes, things don’t work out quite as nicely.

Once ROKU made a lower high, you can see how to simply melted away in a narrow channel. No more big swings to take advantage of.

With ROKU, once the stock stopped making higher highs, it broke the trend. When it started trading in a narrow price channel, it no longer was a viable option for me to trade.

Assuming I didn’t know either of these things, how else could I have figured this out?

 

A journal is a traders best friend

 

Most Weekly Money Multiplier members know that I’m a huge advocate for a trading journal. There’s no better way to see when things have changed for a stock you trade constantly.

Here’s a good example with Wayfair (W). I’d been trading it regularly through a lot of last year. However, I’d been trading it to the short side rather consistently. Eventually, I started to notice something obvious.

 

 

You see, the wins I picked up weren’t that big. And overall, I wasn’t winning them too frequently.

Rather than keep trying to force these trades, I cut them out for quite a while, several months in fact. Only recently did I start trading Wayfair again, and this time to the long side.

In the journal, you can look for trends in your trading patterns. These include:

  • Declining win-rates
  • Inconsistent trade sizes
  • Stock’s performance compared to similar ones

But suppose you haven’t been keeping up with your journaling the way you should. Is there a way to get a general sense if things aren’t working?

 

Eyeballing the problem

 

There’s some pretty easy psychological cues that will tell you and your favorite stock may soon be nearing an end of your friendship.

Most of these are similar to what poker players call ‘going on tilt’ and I call ‘revenge trading.’

Here’s some clues that it’s time to part ways:

  • You start trading the stock more and more frequently
  • The size you commit to each trade grows
  • Your entire day/week’s performance relies on that stock
  • Instead of waiting for setups, you find yourself forcing them where they don’t exist

And look, I get it. We all like to stick with what’s comfortable.

But stocks eventually turn, and you need to know when to call it quits.

 

Dealing with the breakup

 

Now, your favorite stock may find its footing again. However, you shouldn’t give it special treatment.

In fact, I like to come up with parameters for a stock to achieve before I’d consider trading it again.

For example, in order for me to look at trading ROKU consistently again, I need to see the Average True Range (ATR) expand, as well as the stock cross over its recent highs. Ideally, I want to see it make a series of higher highs and high lows.

Short of that, I’ll drop it into a watch list and come back to it from time to time…you know…to say hello.

 

So what’s my favorite stock right now?

 

Interestingly, my most profitable trade year-to-date has been the S&P 500 ETF the SPY. And with the volatility in the market, I expect that to continue.

The best way you can get in on this is to join me at Weekly Money Multiplier. You’ll get access to my live trading portfolio as well as weekly training to help you become a better trader.

Click here to learn more about Weekly Money Multiplier.

Author:
Nathan Bear

Although Nathan Bear has made options trades that resulted in over 1,000% profit, he’s “only made a few” he says wryly! Nathan is one of the best options traders there is. Period. His unique approach incorporating his adaptive 3-step “TPS” trading strategy, has so far brought Nate well over $2 million in realized trading profits.

Nate is a down to earth trader who now imparts his simple trading methods and relaxed approach to his trading subscribers to help give them the keys to trading success.

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