How I tripled my stock trading profits

In February 2018 we realized a +45% profit on QuinStreet (QNST) in less than a month. At the same time, my stock trading rules started giving profit taking warnings for QNST stock.

Here’s what happened to QuinStreet stock since that profit taking alert.

Selling into strength

QNST +45% in less than a month

Remember the QuinStreet trade? Here’s the link to the original article in which I talked about how we realized a +45% on QuinStreet in less than a month.

Related  QuinStreet up +45% in less than a month

Here’s the QNST stock chart at the time of writing that blog post.

QuinStreet

QuinStreet stock rallied an impressive +38.91% in a single day on February 1st, 2018.

My profit taking warning

At about the same time my stock trading rules started giving profit taking warnings.

Such a profit-taking warning is basically a recommendation to sell the stock and take profits off the table and cash in.

It means that my stock trading system has evaluated probabilities and sees a fair chance of a major decline or stock price correction in the near future.

Why sell such a strong stock

I am a trend following stock trader.

To me, that means that I let my winners run.

I don’t sell a stock for a small short-term profit but I try to hold on to my best-performing and strongest stocks until the upward trend is over.

Then why on earth sell QuinStreet at this point?

Doesn’t it look like QuinStreet stock is just breaking out strong and is sky-rocketing higher, all set to keep on going for a long time?

Yes, it does!

Selling into strength

This technique of profit taking is called selling into strength.

Selling into strength means that you are taking profits when buyers are plentiful and nearly nobody is thinking about selling at this point.

The idea of selling into strength is to avoid being forced to sell out when sellers are all around at a moment when it’s nearly impossible to get a good price for your stocks.

Selling into strength is definitely counter-intuitive.

It doesn’t feel like the comfortable thing to do.

That’s probably also why it works out so well.

If you want to make money at the game of stock trading, you need to learn to do what feels uncomfortable. Successful stock trading is not about being right.

Twitter polls to the rescue

Now and then, when my stock trading rules issue a profit-taking alert for a strong performing stock, I run a poll on Twitter and ask traders for their opinion.

I generally ask people how they would react to the profit-taking recommendation and offer them the following answers to choose from.

  1. Sell completely
  2. Sell half and let the other half run
  3. Hold and let run
  4. Tighten your stop and probably choke the trade

People on Twitter almost always choose to hold on.

Almost nobody decides to sell.

Here’s why I do sell.

The case for selling into strength

I look at tens of thousands of stock charts every year.

Which is by the way, not at all exaggerated. As I daily go through about 250 stock charts, I get to see at least 50,000 candlestick charts in a year’s time.

I do that because I want to keep growing as a trader.

By seeing so many stocks and their charts, I started noticing a pattern.

A pattern showing when the greatest and strongest stocks are just on the verge of getting slammed and are about to experience a major pullback or correction.

Admitted, such a pullback can be temporary, and the greatest stocks do recover.

I started wondering, would it be worth it to sell the stock before it breaks down and avoid going through such lengthy and soul-wrenching pullbacks?

My profit-taking algorithm

I invented an algorithm to allow my stock trading system to identify profit-taking opportunities.

The advantage of having an algorithm is that it is based on clear and objective rules that can easily be applied by a computer.

I decided to do a backtest and run the new algorithm on about 200 of my past trades.

The results were mind-blowing.

I first couldn’t believe it myself.

I thought I must have made a mistake somewhere in my program.

I double checked several times and even checked the result by hand.

Here’s what I found.

Selling into strength TRIPLED my net gains!

Hard to ignore such results, right?

I consider selling into strength to be my most important discovery in years.

I then started forward testing my profit-taking algorithm.

That means I started to apply it to my actual trades. One thing is for sure, it felt REALLY uncomfortable. I do feel that I’d rather hold on to my stock when I sell it.

Yet, emotions don’t make money in stock trading.

So I sell.

This is what happened to QuinStreet

Here’s today’s QNST stock chart.

I’m glad I sold 🙂

I didn’t sell at the top but that is hardly ever the case.

Do you notice that QuinStreet declined as much as -30% since then? Also, the worst may be yet to come. A -18% drop in a single day is hardly good news.

QuinStreet stock chart

When to buy QuinStreet again

My stock trading software scans about 10,000 thousand U.S. stocks on a daily basis.

QuinStreet stock is one of them.

I will receive a notification as soon as my trading system issues a new buy signal.

For now, I just wait until that happens.

No harm is done if there is no more buy opportunity for QNST in the near future. There are plenty of other stocks that are in much better shape to buy right now.

The biggest mistake you can make

Here’s the biggest mistake you can make if you want to trade stocks. I have added it here to this article because people are often unaware and make this mistake all the time.

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