Stock Selling Principles

stock-trading-principlesProfit taking:
There exist many schools of thought on profit taking. Below are some observations:
  • Ride the winners, cut the losers.
  • The trend is your friend.
  • Beware of good news.
  • Beware of self congratulations.
  • Beware of the Midas touch.
  • Beware of analyst upgrades.
  • Be fearful when you are greedy.

Knowing when to sell a stock has proven to be a difficult achievement. For most folks it is complicated by emotions of either fear or greed. Greed logic being, if the stock price is up, it may yet move up further. Fear logic being, if the stock price is down, it must come back to where it has been. Neither of these emotional states recognize the possibility that if it is up it might come back DOWN to where it has been or if a stock price is down it may yet move FURTHER DOWN.

Another angle is the possibility of leaving money on the table when a stock price is up, or recognizing a real loss when the stock price is down. Amazingly there are people who think that by not selling the stock that is down, they haven't actually lost any money. Strangely they are willing to talk about the stocks they haven't yet sold for the gains which have moved up nicely for them.

BOTTOM LINE! The following stock selling principles are required for profitable stock trading:

  • LIMIT YOUR LOSSES - if the stock price is moving away from the direction you were betting on, don't get emotional... close the position and move on. There is only making money or losing money. Don't lose too much money.
  • CASH IN YOUR GAINS - while your stocks price is moving up and a sell signal is triggered, close the position to ensure profit taking.

The following guidelines are used for stock trading:

  • Always be ready to sell your "best" stock trade.
  • Always be ready to hold your "worst" stock trade.
  • Have patience with a stock trading in a consolidating pattern.