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When To Sell
Every investor who has ever purchased stocks has had to make the difficult decision of when to sell. If you use a long-term strategy like dollar cost averaging, you only face this decision on rare occasions. However, if you are an individual who makes multiple trades every month then this is a difficult question. Since it is almost impossible to predict a market top or bottom, knowing when to sell is more luck than skill. Developing a strategy that can be used on all your trades will help remedy the situation. It must be understood that there will be times when you liquidate your position and it immediately rises in value. It is going to happen. However, as the old saying goes, any profit is a good profit. Risk tolerance, life situations (immediate need for cash), reaching a preset price level, and the desire to liquidate your position so that you may invest in another stock, are just a few of the reasons that may influence your decision. Many investors feel the best strategy is to limit your losses and let your profits ride. In theory, they are absolutely correct. However, I found that if I waited to long to take a profit, I would inevitably give most of it back. The large majority of the time, when a position increased by more than 20%, it would retrace. I made the decision to start selling most of my positions on or before the 20% profit mark. Admittedly, it sounds rather arbitrary. And yes, I have many times missed out on further profits. However, I believe the losses I have avoided over the years have far exceeded the possible gains. If the unfavorable scenario arises where your position decreases in value, it is best to make use of a predetermined stop/loss. Setting your stop/loss is almost always determined by your comfort level. If losing 20% of your investment drives you insane, set your stop loss at 10%. Charting specific stocks and obtaining their support and resistance levels is probably the best means of determining when to sell.
Disclaimer: I am not a Registered Investment Advisor. All information on this website is my opinion and is put here for entertainment for my readers. I do not recemmend making financial decisions based upon my opinions. I will always give full disclosure if I own any stock that I am recommending. All information on this website is obtained freely from the Internet, Radio and Television. Any income generated from this website is created from the clearly displayed advertising on each page. |