Investors hoping to hold long-term performers like Nvidia stock need not grapple with the fear of missing out when it comes to selling. This successful trader says to leave it to math, rather than chance.
"What really made a difference for me in my long-term trading is what we called … mental capital preservation," Kathy Donnelly, trader and co-author of "The Lifecycle Trade," tells Investor's Business Daily's "Investing with IBD" podcast. "It's really just three big words that mean how much gain do I want to retain."
Donnelly says she uses a formula to determine with certainty where to set a stop or sell a stock. The starting block is determining how much profit an investor wants to retain given a time period, in Nvidia stock's case, a multiyear timeframe. "No matter how much [Nvidia stock] went up, I was going to retain at least 35% of my gains," she said.
Audio Version Of Podcast Episode
Preserving Mental Capital On Nvidia Stock
To calculate a "mental capital preservation" stop, Donnelly says to take the difference between the stock's peak price and its buy price and multiply it by the percentage you want to retain. Then add the buy price to obtain the stop point.
In the case of Nvidia stock, Donnelly says she took the peak price of 140.76 and subtracted her split-adjusted initial entry of 6.57, then multiplied by 35%. Adding the buy point resulted in a sell price of 53.54, which she is using as her stop point for Nvidia.
This long-term-hold mindset allowed Donnelly to hold Nvidia through the 2022 bear market while remaining profitable on her initial entry. Check out the full podcast episode for details on Donnelly's strategy.
Peace Of Mind While Trading
Nvidia stock has fallen from its all-time high of 140.76 reached in June but still remains 32% above its last proper buy point at 97.40. The stock is ranked No. 1 in the Electronics-Semiconductor Fabless group and has a Composite Rating of 99 according to IBD Research. The company specializes in computer processors that are particularly useful in powering generative AI models, leading to consistent demand and triple-digit gains in the stock price.
But despite outsize performance, Donnelly says using a mental capital preservation stop gives her the peace of mind of knowing her limits. "My mindset is, I'm always retaining gains," said Donnelly. "If I'm always retaining gains, I'm always making money."
Tap here to learn how to find and hold a winning stock to big gains.
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