Lessons From Dr. Mansi: How to Sell Stocks (Part 2)
Rules for booking profits and booking losses
Time for part 2 of my notes on Dr. Mansi’s video: “How I Sell Stocks”, from the series on how she trades. Today, I’m covering:
Dr. Mansi’s rules for booking profits and for taking losses; and
A summary of the video’s key lessons.
In case you missed it, part 1 talks about the importance of sell rules, planning your exit when entering a trade, and Dr. Mansi’s rules for moving up her stop to breakeven and beyond. It also discusses how to learn from these types of videos.
Again, please do follow Dr. Mansi on X/Twitter and subscribe to her YouTube channel if you aren’t already!
Rules for booking profits
Part 1 showed most of Dr. Mansi’s flowchart on her sell rules. Most importantly, she knows as soon as she’s taking a trade whether she’s going to treat it as a position or a swing trade based on pre-determined criteria. She also has simple, mechanical rules for when to move up her stop loss to breakeven and beyond.
So, unsurprisingly, she also has rules for when to book profits, as shown in the completed flowchart below (31:46):
As a reminder, both Dr. Mansi and myself recommend writing down your rules and keeping them on or near your desk. In part 1, I made some suggestions on how to find your own sell rules and develop conviction in them. Admittedly, those suggestions relate to when to move up your stop loss, but the same principles apply to figuring out your other sell rules.
Position trades: selling half at the third leg up
For her position trades, Dr. Mansi sells half after the stock has a third leg up (32:50):
This relates to the way stocks move: they go sideways for very long periods (quite possibly years), then can suddenly start an uptrend following a catalyst. In part 1, we saw that Dr. Mansi position trades major EPs, which can trigger such uptrends.
So if Dr. Mansi buys an EP that turns out to be the start of the first leg up, for example, and never takes out her stop, she holds it until the stock has a third leg up, then sells half of her position. Why? Because, historically speaking, the odds of a stock having a fourth leg up (and beyond) are quite low. It’s certainly possible, but trading is a game of probabilities. Stack them in your favour.
She gave $MNSO as an example (33:34):
She bought it on the EP on 14 November 2022 (blue arrow). It then had three legs up, as I’ve indicated on the screenshot, and when the stock began to look extended to Dr. Mansi after the third leg (red circle), she sold half.
Towards the right side of the chart in the screenshot, the stock looks like it may have a fourth leg up. If it does break out, Dr. Mansi would only take it as a swing trade due to the low probability of a successful fourth leg.
Position trades: selling the remaining half after a parabolic move
Dr. Mansi sells the remaining half after the stock goes parabolic (35:31). In other words, the angle of the stock’s move changes.
She gave $SPCE as an example:
Based on the stock’s earlier move, you’d expect it to continue following the dotted line. But it doesn’t: it makes a sharp move upwards. The stock goes parabolic — the angle of the line has changed. This is often a sign of the stock topping, so Dr. Mansi sells the remainder of her position into that strength.
Dr. Mansi pointed out that indices can go parabolic too, such as the $QQQ in late August 2020 (36:44):
Such an acceleration isn’t sustainable, so Dr. Mansi reduced her exposure, expecting an (often sharp) pullback. That pullback may only last a few days, but she still prefers booking profits over taking that chance.
Position trades: getting out after the stock breaks a trendline
Dr. Mansi would also completely get out of a trade if the stock broke a trendline (38:30). Note that you can only draw a valid trendline if it touches at least three price points (lows of the day).
Again, she gives $MNSO as an example (which she also tweeted about):
She sold the last part of her position on 21 March 2023, after it broke a major trendline.
Dr. Mansi previously used a break of a key moving average as a sell signal, as is a common approach, but found that frequently shook her out. That’s why she now uses a break of a trendline, which works better for her.
Swing trades: sell half at 2R
Dr. Mansi’s sell rules for swing trades (41:10) are very simple: she sells half her position at 2R (but moves her stop to breakeven after 1R). This finances her risk (because she is booking a profit of 1R), allowing her to open a new position with 1R risk when a stock sets up, meeting her criteria. I put together the below flowchart to help explain this:
Swing trades: sell the remaining half after 3–5 days
For swing trades, Dr. Mansi sell the remaining half of her position after 3–5 days. This time frame reflects how most stocks tend to move: in ‘momentum bursts’, as Stockbee puts it.
Dr. Mansi showed her $MARA trade as an example of a typical swing trade for her:
I also added blue boxes to show various other little rallies that lasted 3–5 days, illustrating the point that this is how stocks tend to move. As Qullamaggie says, this is something you must learn to build conviction. Both Qullamaggie and Dr. Mansi learned how stocks move from Stockbee, but neither simply took his word for it: they confirmed it with their own studies.
Rules for taking losses
Dr. Mansi says she received no questions about taking losses (44:49): this obviously isn’t a very popular topic to talk about, but having rules for this is actually more important than having rules for booking profits. If you lose all your money, you can’t trade!
Respect your stop loss
The first golden rule is to respect your stop. If you stop is hit, you don’t hesitate or second-guess yourself — you just get out. This in itself will prevent you from doing major damage to your account. As Dan Zanger says:
“Love your stops, not your stocks.”
Not enough cushion
If the stock is close to your stop by the end of the day, and there is a very real risk of the stock gapping below your stop, Dr. Mansi also sells the position. She doesn’t want to risk a result worse than -1R.
The same logic applies when you lack sufficient cushion going into a binary event like earnings: if Dr. Mansi lacks a cushion to hold through that type of event, she sells.
‘Train not on schedule’
Mark Minervini uses the phrase ‘train not on schedule’. To quote one of his tweets:
“The key to trading is not knowing for sure what a stock is going to do next but knowing what it should do. Then it’s a matter of determining whether the proverbial train is on schedule. Knowing normal from abnormal price action is what technical analysis is all about.”
Dr. Mansi gave the example of buying a breakout, expecting the stock to go up for 3–5 days, but it instead drifts sideways on high volume, despite the rest of the market rallying. In such a case, she would sell:
“Whatever the current price is, take that risk off, and maybe put your money to work in something much better.”
If the stock is doing something different to your expectations — i.e. the train isn’t on schedule — just get out of it. There are plenty more fish in the sea.
Key lessons
Across the overall video, I felt that these were the key lessons:
Have clear sell rules, write them down and keep them on hand when trading.
Ensure your rules cover the following scenarios:
When to move up your stop.
When to book a profit.
When to take a loss.
Keep your rules as simple and mechanical as possible.
Make sure your rules make sense to you.
Risk management comes first. Whatever you do, make sure you don’t really damage your account.
Feedback
I hope you found my notes helpful! If so, please do give this a like and share it with other traders.
I’m also always looking to get better, both as a trader and as a writer, so do let me know if you have any constructive feedback in the comments below. Alternatively, you can message me on X/Twitter or email me at kayklingson@yahoo.com.
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