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One of the most challenging and overlooked aspects of trading is taking profits on a winning trade. Many traders with self-directed investment accounts have a plan for buying a stock but never consider how they will manage the trade once the purchase is made. If we are fortunate, the price of our stocks and ETFs will rise and our next decision becomes one of selling a winner rather than selling a losing trade. With the Quick-Trade methodology that we use here at Natural Selection Self-Investing, our trades are on a shorter time-frame and we typically hold a security for a few days to a few weeks.
This week, many of the names on our watch-list exploded higher as the price of silver had a breakout move. Silvercorp Metals (SVM), Endeavour Mining (EDV), and others made gains of 15-30% in just a few short days. Normally, if I make a quick 30% gain I sell into the existing strength and move on to the next opportunity. But in the case of gold and silver miners, I want to illustrate what can happen in that sector if the economic backdrop is appropriate. Consider the chart of Fortuna Silver (FVI), a small silver miner that had a massive breakout this week.
We can see here that Fortuna moved above its 50 day moving average in mid June and has crawled along that average for the better part of a month. On Monday, when silver broke it's downtrend line Fortuna exploded higher, racking up a 30% gain in two short days. So let's sell this sucker and move on, right? Not so fast. Let's take a step back and look at this company on a longer time frame.
The chart above is on the weekly time-frame, meaning that each candle-stick represents a full week rather than a single day as is the case in the first chart. We can see our two-day 30% move on the right side of the chart and in this context it looks rather small doesn't it? Looking at the left side of the chart, we can see that in 2016 Fortuna had a massive six-month rally that resulted in a whopping 336% gain.
In a recent blog post, I noted that the price of gold made a five-year high, indicating that the trend is shifting from down to up. Silver now seems be following suit, which can only increase the profitability of companies like Fortuna that are leveraged to the price of precious metals. While there is no guarantee that the kind of explosive move illustrated here is in the cards this time, I think now is a time-period where we need to be very patient with our sells in the gold and silver mining space and let some these trades play out instead of taking quick profits.
Here at Natural Selection Self-Investing our objective is to identify, trade and invest in positive trends, as opportunities present themselves. Consider subscribing to our service, free blog, or sign up for some free Quick-Trade set-ups like the one illustrated above.