How To Trail Stops On Winning Swing Trades For Maximum Profit

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Being a consistently profitable swing trader is a juggling act that requires one to constantly be focused on a variety of key elements of success: picking the right stocks, managing risk, determining when to sell, and even mastering the psychology of trading.

In this educational trading strategy article, we will dive into the topic of knowing how and when to sell winning ETF and stock swing trades for maximum profit, using the example of an actual swing trade we are currently positioned in. As for when to sell losing trades, there’s frankly not much to say other than always have a predetermined stop before entering every trade and simply honor  it.

Since April 12, the model trading portfolio of our swing trading newsletter (The Wagner Daily) has been long Market Vectors Semiconductor ETF ($SMH). We initially alerted traders of the technical reasons we were bullish on the semiconductor sector (and $SMH) in this March 28 blog post. Since then, we have also reminded regular readers of our trading blog several more times about the increasing relative strength in semis.

In the “open positions” section of today’s (May 13) Wagner Daily,  subscribing members will notice we have trailed our $SMH protective stop higher for the fourth consecutive day. Because the ETF is already nearing our original target area of $40, while remaining on a very steep angled climb, we have been continually squeezing the stop tighter in order to protect gains, while still allowing for maximum profit.

On the daily chart of $SMH below, we have labeled the increasingly higher stop prices we have used in each of the past four sessions:

$SMH stop placement

As you can see, our stop in each of the past four trading sessions has been raised to just below the low of the prior day’s session. Whenever an ETF or stock is nearing your target area and you wish to maximize profits while still protecting gains, setting a stop just below the previous day’s low (allowing for a tiny bit of “wiggle room”) is a great strategy. This is because basic technical analysis states the prior day’s lows and highs act as very near-term support and resistance (respectively).

By using this method for trailing stops, you will be out of a winning position before the start of a significant pullback, while still allowing the gains to build as long as buying momentum remains. This system also provides an objective way for knowing when to close a winning swing trade, rather than guessing and potentially leaving significant profits on the table.

Of course, there are many different ways to manage exits on winning momentum trades, and some of those methods are equally as effective as what is explained above. The reality is that any trading system can be a great one if the trader proves to be profitable with it over the long-term (even if the system involves trading by the cycles of the moon).

As such, we would never imply that our system is absolutely the best way to manage stops on winning swing trades. But what we truly love about our exit strategy is its utter simplicity; simple trading strategies are the easiest to follow and thereby profit from. Why complicate a technique that has already been proven to work so well? Become a member of our swing trading service to learn more.

Do you utilize this or a similar exit strategy? If not, how do you prefer to exit winning trades? We would love to hear your feedback, so drop us a line below (and please share this article if you enjoyed it).

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4 comments on “How To Trail Stops On Winning Swing Trades For Maximum Profit

  1. Deron,

    Thanks for the post. I completely agree that keeping stops is paramount to trading success. Do you ever consider buying puts as a form of stop? Especially in today’s market with premiums so low it seems a good way to keep a stop. It has the added benefit of protecting your position from an overnight gap down.

    I see that the SMH at-the-money puts going out to June are relatively cheap. Just curious.


    1. Hi Steven,

      Thanks for your comments.

      We actually do not trade in options, as we prefer to focus on what we know best…stock and ETF swing trading. However, I know plenty of people who use options instead of stops, so I assume it must be a decent strategy (especially if premiums are low).

      Like I said in the article, there are many strategies for being a profitable trader and they all are great if they work, just as long as they can be consistently replicated with discipline (not “shoot from the hip”).



      1. Thanks Deron. Trading what you know is obviously the way to go. Just signed up for your newsletter. Looking forward to seeing your ideas.


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