Simply put, the 7-10% Rule applies to trading and where you start to lock gains to ensure that you consistently profit. A lot of newbies are often lost, thus befuddled, and don’t know when to lock gains, especially in a winning trade or a stock that is up hugely, so this will shed some insight moving forward. I know this because I had the exact problem back in 2016, and even some part of 2017–until I came up with a very effective rule.
How it works
The 7-10% Rule generates consistency, and this is what grows your account immensely. When you get into a trade and don’t know where to sell–be it a swing trade or day trade–make it a habit to always lock half after 7-10% gain. That is, if you have 1000 shares of stock ABC at $1.00 and it goes to about $1.07-$1.10, sell about 500 shares to guarantee those gains, and then if the stock goes up 20%, sell another 250 shares. Now you’re left with 250 shares (1/4th of your initial position) to enable you capture a much bigger move without FOMO (fear of missing out) being a deterrent.
Remember that it’s not about the swiftest, but the most consistent… Don’t be swayed by those posting gains online, as we all have different stories; so, go at your own pace. In a similar fashion, when you’re down 5% or more on any trade, consider selling it or at least shaving your position size. Risk management is equally as important in trading as anything else. The 5% is your stop loss, and it’s particularly more important when you’re buying near support (visit my blog about support and resistance) because that stop loss is seldom likely to hit compared to when you chase a stock that’s already up 15%+.
Ultimately, the 7-10% gets you to a very safe zone, especially when you’re still learning and building your account. But that would change once you gain more experience, for you would then have a clear idea of how high a stock could run due to the catalyst, share float, or chart setup, etc,.