Opinion: These 6 Smart Stock Selling Strategies Can Help You Keep What You Earn in the Market
One of the mistakes many traders and investors make is not thinking enough about selling. For investors, the old axiom is to buy and hold indefinitely. This “never sell” strategy works wonders during long bull markets, but it can result in significant losses when a bear market or correction finally arrives.
To help alleviate some of these challenges, here are six proven selling strategies that work for many investors and traders. At least after buying a stock or ETF, think about when and at what price to sell.
1. Buy late and sell early: Most investors and traders have tried to “buy low and sell high”. While this is a wonderful goal, the reality of trading and investing is that it is extremely difficult to find the right time.
Here’s the opposite view: legendary stock market speculator Bernard Baruch, when asked the secret to his success, replied, “I always buy too late and sell too early.
Buying late means you’re not trying to get the lowest price possible. Instead, wait patiently for the action to prove it’s winning. Rather than trying to get every penny out of a transaction, sell somewhere that makes a decent profit.
Although Baruch’s Rule runs counter to almost everything taught about trading and investing, following it helps reduce emotions, especially fear and greed. To follow this method, you must be prepared to miss out on potential opportunities in order to reduce the risk. It also means being prepared to buy at a higher price than everyone else, which is annoying for those trying to get the best entry prices.
2. Gradually sell up or down: Instead of selling a position all at once, whether for a gain or a loss, you may want to “increase” a position. For example, let’s say you are “long” from 600 shares of one share to $ 25 a share. If it reaches $ 27 per share, consider selling 200 shares. If the stock continues to rise, sell another 200 stocks.
Now that brokerage commissions are free, there is no penalty for reducing winners. You can cut losers down as well, although I’ve found that once you’ve identified a loser it’s often better to sell all of a sudden and move on to the next trade.
3. After purchasing, create target prices or percentages: One method to help determine when to sell is to create a target, either by price or by percentage. For example, if you bought a stock at $ 25 per share, you can set a target price of $ 28 per share.
Keep in mind that you aren’t just picking a target price out of thin air, but identifying it based on fundamental or technical analysis. Technical analysis, such as using moving averages, is a more precise and accurate method when selecting target prices.
Another idea is to choose a target price based on a percentage, for example, sell when the stock or ETF goes up 5%. Again, rely on technical indicators to determine an appropriate percentage.
Also, if you can’t believe how much and how quickly the stock (or some other financial product) has won, instead of continuing to maintain an even higher score, take the opportunity to sell a game. of the position, however small.
There is nothing worse for a trader’s ego and account than seeing huge gains vanish because the money has not been taken off the table. Now is the time to be disciplined, and that means not only having sales goals, but also selling when they are met.
4. Sell the losers quickly: Here is a rule that I follow: Sell the winners slowly but sell the losers quickly. Not everyone might agree with this, but the alternative is risky: Hold losers for too long until most or all of your winnings are gone. Just as you should have price and percentage goals for your winners, so do for your losers. We all have the hope that a losing investment that we own will miraculously rise from its ashes and pay off. More often than not, it is wishful thinking. This is why it is so essential that you prepare yourself in advance for the worst scenarios.
I have learned from experience that once a loser is identified (based on technical indicators such as moving averages) sell at the first opportunity. This rule alone has saved me countless amounts of money. Face the reality and admit you’re wrong. Then continue.
As most traders know, it is recommended that you set a mental or physical stop loss in case you get it wrong. Generally, selling at a loss of 7-10% is fine, but feel free to adjust the amount as you see fit. The main point is that you must avoid letting a small loss turn into a huge loss.
Your online brokerage company probably allows you to set alerts or sell triggers when certain prices or percentages are reached. Automating the sales process removes the emotion and forces the title to sell.
5. Take regular benefits: While it may seem obvious, especially when discussing sales strategies, remember to take profits periodically. Additionally, it is essential to regularly review and analyze your portfolio and make selling decisions, such as dumping losers. If you have extreme gains, larger than you ever imagined, it would be prudent to reserve some of the profits and diversify into other financial products.
6. Have a list of rules or a plan: All of the above ideas that you agree with should be turned into a list of rules. Another idea is to create a “sales script” or plan that spells out specific selling instructions, for example, reducing a position if it gains 10% or more in a day.
Following written rules helps keep emotion out of your selling decisions. It also keeps you from “playing by ear” or panicking in volatile markets.
Of course, it’s more fun to buy than to sell. Yet, it is a huge mistake if you neglect to develop and apply sales strategies. While your ultimate goal is to make a profit, more importantly, you need to take steps to protect those hard-earned gains. After all, there is nothing more frustrating than watching huge gains turn to dust.
Michael Sincere (michaelsincere.com) is the author of “Understanding the options“ and “Understand the actions. “His latest book,”Make Money On Trading Options: Short Term Strategies For Beginners, ”Presents simple option strategies to beginners.
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