Think and Trade Like a Champion
When To Sell And Nail Down Profits
One of the most uncertain moments in trading is when to sell. Selling too soon leads to the fear of losing out on future profits. Selling too late leads to regret. These two emotions of fear and regret lead to indecisiveness.
There are two basic strategies in which to sell. The first is to sell into strength when the stock is moving in the favourable direction and there are plenty of buyers. The second technique is selling into weakness. Initially, the stock made a good run but is weakening now. In this case, the profit needs to be protected as the stock reverses. This can happen suddenly requiring a very swift response.
Both plans begin with an “aerial view.” From an aerial view, one has to infer the context of the existing price action. Without this viewpoint, they run a high risk of getting trapped in fears and emotions.
A crucial factor that affects the decision to sell is where the stock is within its cycle. One way to evaluate whether the stock is in the early or late stages of its upward move is with the base count. This matters exceedingly because it will notify about the possibility of a continued move, or if one should look out for more distinctive sell signals.
A stock’s P/E also indicates where a stock is in its life cycle. Specifically, it tells whether the run-up is late-stage and further upward propulsion is likely to be depleted.
After a leading stock makes a healthy advance for many months, the price will go up at a faster pace and a steeper angle than at any time during the advance.
When this happens, the stock should be sold into the rally and book at least some of the profits.
If a stock experiences its largest daily or weekly price decline since the onset of a Stage 2 advance, it is giving an outright sell signal.
The objective of stock trading is to make a generous profit on investments. It is not to try to be right all the time. It is not always possible to get the highest price. However, it is also not necessary for achieving super performance.
Instead of bothering about selling at the high or buying at the low, one should be concerned about making an adequate profit and repeating it over and over.
Almost as the buying setup, the selling too requires rules. Having rules about selling results in making decisions based on strong rationale instead of giving in to the emotions of fear and regret.