When to Sell Stocks and Shares?
h) When to Sell Stocks and Shares?
Most beginners in the stock or share market spend a majority of their time looking for which stocks to buy and when to buy.
In contrast, many experienced stock market traders and investors know it is far more important to:
1. Manage their trade and portfolio risk exposure (money and risk management), then
2. Closely monitor their open positions by concentrating on when to sell.
In fact, Jim Kelly, a veteran trader with over 40 years stock trading experience says:
“ The secret to my long term survival in the stock market: Before I buy a stock I need to have all my ‘planets’ (stock trading rules) aligned .......... but it only takes one planet to be out of line before I exit."
Two major psychological mistakes made by many losing stock market participants:
- Attachment - they become ‘married’ to their stocks (e.g. due to the Company’s ‘story’), even though prices may be falling and their portfolio value/wealth diminishing as a result.
- The urge ‘to be right’ – they insist their view is the right one -- even though the stock price and market may be going in the opposite direction.
One of the key rules to surviving in the market is working out, before you enter a new position, exactly where you will exit if the trade goes against you i.e. Be prepared to set an ‘initial stop’ and cut your losses if your selection doesn’t go the way you expected.
If prices move in your direction as planned, then progressively raise your stop (‘trailing stop’) at a level sufficiently below current price action but high enough to lock in your open profits if prices reverse.
Once you have made your selection and bought your stock you have no control on future price activity – that is left to the market – the only control you have is when you sell your stock ….. and that is totally up to you.
Winners decide to take responsibility for their actions.
A number of factors can influence your decision to sell. Remember that you must make the ultimate decision.
1
Reasons for selling may include the following:
- A major incident occurs which you believe will influence the overall market direction
- You consider the market or sector will be or is going down
- You decide to follow a ‘professional’s (or other 3rd party) “advice”
- You need the funds for other purposes
- To rebalance your portfolio
- Prices reach the valuation level previously announced by analysts
- The Company has been taken over
- The Company issues a negative announcement
- Your ‘initial stop’ has been triggered
- Your ‘trailing stop’ has been breached
- You learn the basics of Technical Analysis - so you can then recognise:
- Short term reversal signals
- Prices have exceeded the 'Berg Profit Taker' and are likely to retrace -- so it’s time to lock in short term trading profits
- Your projected target sell price has been achieved (e.g. channel trading, ascending triangle, bullish flag & other short term trading patterns)
- A straight edge trend line or previous support level has been breached
- A parabolic trend trade is about to peak
- The overall uptrend of the stock has reversed
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