Let me get you thinking…
‘A quitter never wins and a winner never quits.’
This phrase is undeniable. It captures the essence of both success and failure. The advice is as timeless as it is simple. It’s something I tell my kids all the time.
But do you know what?
These words can also lead to ruin. There are situations when quitting is essential. Giving up is sometimes the best decision you can make.
I’ll explain what I mean by this in a moment. But first, do you know the quote’s origins?
Well, it’s from Napoleon Hill. His writing set the standard for today’s motivational gurus. He precedes the likes of Tony Robbins by almost a century.
Hill’s book — Think and Grow Rich — is an all-time classic. It first appeared on bookshelves in 1937. And it’s one of the bestsellers of its category in history.
The book’s origins are fascinating. It all began with an interview. You see, Hill was a young reporter. His assignment was to do a series of interviews with the rich and powerful.
Hill’s first meeting was with steel baron Andrew Carnegie. The industrialist had strong views on success. He said it all came down to a simple formula…something anyone could follow.
Carnegie asked Hill if he would be interested in analysing other wealthy men. The aim would be to publish the universal laws of success. Hill, of course, said yes.
Over the next 25 years, Hill interviewed 500 of the most powerful men of the time. Among them were Henry Ford, Graeme Bell, and FW Woolworth.
The end result was Think and Grow Rich — a collection of 13 principles for making a fortune.
I first read this book over a decade ago. It’s an absolute gem. I keep a copy on my office bookshelf.
One of Hill’s 13 principles is persistence. He says there is no substitute for this trait — it’s an essential building block of success. Hill calls it your insurance against failure.
This is a powerful chapter. Its core message is don’t quit — success will find a way.
Yes, persistence is a virtue. Enduring setbacks and not giving up are behind just about every success story. It’s what drives us to greater highs.
But a steely resolve can also backfire. It’s one of the main reasons traders fail.
Let me tell you what I mean…
It’s no secret that most traders struggle. The concept seems simple enough. But it often falls apart in the execution. Some sources put the failure rate at over 90%.
I think the problem is largely due to a series of contradictions. You see, trading defies many of the rules we associate with success. Good trading can feel like going against the grain.
Take decision making, for instance. From the moment we’re born, life typically rewards us for being right. This naturally conditions us to want to be right all of the time.
But trading is different. Many successful traders are usually wrong. They make money on less than half their trades. That’s not what most people would expect.
Then there’s the matter of persistence — possibly the biggest contradiction of all.
Persistence is vital in one sense. A successful trader will persistently follow their system.
But this rule doesn’t apply to individual stocks. You see, giving up on trades that aren’t working is essential. This is where being a quitter can really pay.
When quitters win
Let me show you three examples. These are all recent exits from Quant Trader’s portfolio. I want you to see how important it is to know when to quit.
Here’s the first chart…
This was a trade in data security business Covata [ASX:CVT]. Quant Trader’s buy signal was at 46 cents on 9 February, 2016. The trade’s exit point was 11 weeks later, at 27 cents.
Quant Trader’s strategy involves buying into strength. The odds favour a strong stock continuing to rise. That’s the underlying principle of trend following.
But this won’t always be the case. Some trends falter quickly. Quant Trader deals with this by quitting the trade. The aim of this is to minimise losses.
Many traders do the opposite. They persist. A reluctance to admit defeat keeps them in the trade. This can act as a loss-maximising strategy.
Yes, some stocks bounce back. There are many examples of trades recovering after hitting an exit stop. But these don’t pose a risk to your capital.
The danger lies with the stocks that don’t rebound. These are the stocks that can ruin your returns. Stocks like this languish in many traders’ portfolios for years.
Quant Trader manages this risk with an exit stop. You could think of this as your quitting point. It helps you avoid hanging on to a stock that spirals lower.
Giving up on CVT was the right call. The shares are down a further 61% since Quant Trader’s exit.
The next example is Japara Healthcare [ASX:JHC].
JHC’s first buy signal was on 14 September, 2015. There were two entries in total. The respective levels were $2.92 and $3.39. The exit from this trade was at $2.71.
I’m going to say something that may surprise you: This was a good trade.
Yes, I know the result was a loss (7% for signal 1 and 20% for signal 2). But it’s still a good trade. This is because the system followed the rules and quit at the right time.
Doggedly holding would have led to a worse outcome. JHC is currently down 36% and 45% from the respective entries. These losses could get even larger.
Again, persistence was not the best strategy. It was far better to walk away.
I have one more trade to show you. This one is for Vocus Communications [ASX:VOC].
VOC first came into the portfolio in November 2014. There were three signals in total. The respective levels were $6.03, $6.90 and $7.79. Quant Trader’s exit was at $7.89.
This was a successful trade — all three signals made a profit.
But it could have been very different. A mistake some traders make is to hold on to their good trades for too long. They ignore warning signs and don’t sell when they should.
Anyone persevering with this trade is now losing money. The stock was recently down 33% from Quant Trader’s quitting point.
And that’s not where it ends.
You’ll notice Quant Trader has a short on VOC. Good traders don’t just ‘quit’ when a stock doesn’t go their way. They may also reverse their position.
Persevering in life is often a virtue. But, in the markets, it can lead to trouble. So don’t be afraid to give up on a trade that’s not working. That’s how the best traders think and grow rich.
Until next week,
Editor, Quant Trader
Editor’s note: Exit strategy is one of the most important decisions you’ll make. Yet, despite its importance, selling is an afterthought for many traders. This can be a costly mistake.
Quant Trader uses a stock’s recent volatility to determine when to sell. This tailors the exit level to each situation. It’s not just about holding on to winners longer. It’s also about getting you out when the trend turns lower.
So if you’re not sure when to sell…I strongly suggest you look into Quant Trader now.
Try it. See if it makes sense to you. It could change the way you trade forever.
PS: Quant Trader sources all images in the article above.