First of 3 parts.
When trading stocks, experts will tell us that we have to invest time in it. I’m no expert but I see the wisdom in it. Active traders spend 2 to 3 hours per day studying their next moves, maybe even more. As if it’s already a part-time job. Heck for some lucky ones managing big amounts it’s already their day job. The point is all of us must come up with a trading plan. Study, plan, execute. Not during market hours but way before opening bell, days even. Study the forming set-up then interpret what the chart movement is telling. Have a list of stocks you monitor and wait for the proper entry and exit points. I’m not there yet but hopefully within the year, I get to allot more time to really study study. Priorities.
It’s like hunters stalking their prey. Not some emotional being getting carried away by sudden movements minutes after opening bell. The advantage of having a plan is you become less emotional and more rational. And you get to refine the plan as you go along.
They say buying a stock is easy. The challenge is when to sell it. As follows is a running list of when you might want to consider selling your position. Caveat emptor, these are just suggestions that you might want to include in your own personal trading plan. Caveat emptor. Your selling frequency depends on your trading style, investment horizon and your capital since selling incurs charges.
Sell when happy.
Nothing wrong with taking profits. Understand the human psyche that fear of missing out (FOMO) is usually stronger than our fear of loss and there are times this can work against us. But we have to remember that we have to protect our capital first and foremost instead of chasing gains. Having a small gain is always much better than losing a small amount. Ask yourself when you’re happy and take profits. The particular stock might fly after you sell but always know that there will be other opportunities out there. Don’t fall in love with a stock. Heck, if you wait long enough that stock might come down again and pick you up.
To offset the FOMO, sell half, one third etc. You took profits then you allowed some more to go higher if it really goes higher. A new concept I learned from a group I enrolled in is zero-cost-averaging (ZCA). This works if you have large gains and you hold many board lots. ZCA is when you sell partial holdings such that you recover all your costs for your whole holdings and allow gains (no costs) to increase further. For example, you invested 10k, the market value now is 15k. You sell # of shares that has 10k value now. After this, technically you already recovered 100% investment then 5k worth of shares is still working for you.
When your target price is hit.
If you’ve been reading your brokers research they’ll always have target price (TP) or fair value (FV) for covered stocks. If you have faith in such numbers or if other online sources have a similar TP, then you may use it as benchmark. If the price hits the TP, or your own TP wherein you’re happy, sell. But what if its goes higher? Then consider the first 2 tips. Again, it’s reason vs emotions. The market is very emotional so best not to get too emotional with it, better yet outsmart it. Be rational and try to outwit the market since this is your hard earned money.
Sell when price fails to breach resistance.
It follows that you know what the price resistance is. If not, read about it. It could be a major technical resistance based on historical prices (look at chart) or psychological whole numbers as such 1, 10, 20, 50, 100 etc. Expectation here is that price might move sideways or worse go down which can erode your paper gains. But if you’re confident that the stock can attempt at breaking the resistance again (which can lead to a breakout) in the next few days, then consider selling just some or sitting tight. Your money, your call.
Sell when price falls from support.
A breach of support can spell a more nasty fall in stock prices. You do know that you’re not the only one watching the price and the support levels. When people panic, they stampede to get out of the door. Again it follows that you know where the support is. Some traders also compute for a midpoint (MP) between support and resistance. The MP acts as minor support and resistance too.
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