knowing when to sell (so you lock-in your profits)

  • Post category:Basics
  • Post last modified:November 18, 2020
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In this post, I wanna talk about the art of selling stocks.

One of the challenges most newbies have, which surprisingly, they are not aware, is the idea of selling.

Buying stocks is one easy thing to do.

Once you have the money, all it takes is a tiny itch and greed to make more out of it.

But that is only one part of investing.

Soon you should learn when to sell.

And the art of it.

That’s the only way we money money so we better have an idea how to do it in a sensible way.

In one of COL videos, there are two reasons why we should learn when to sell.

First reason is – Taking profits allows you to secure your gains.

This becomes more important especially when the stock experiences “windfall” gains.

Most of the times, you’d want to sell only a portion so you can still participate in the growth in case it continues its uptrend. This is assuming the favorable longer-term trend is still there.

Taking profits then is a way so you can maximize the opportunity in stocks’ volatility by actually securing your gains and buying it at the support (if the price finds itself there).

This is also based on the idea that stocks don’t go up forever.

Soon the price momentum vanishes, and it next finds its new often lower equilibrium price through consolidation (trending sideways or a minor pullback). It’s there short-term pullbacks we would like to take advantage when we do this kind of market timing.

Below image also gives you an idea of where and where to place your take profit levels. The main different is you sell a bigger portion when it attains a steep “magnitude” changes (windfall gain) in a short period of time.

Here we see that the selling proceeds should also be used to buy back on support so be prepared mentally on this next action (again, assuming no change in prevailing trend).

selling in philippine stock exchange

Another reason to sell is to protect your capital via cutting your losses.

You can watch this video why it’s important to protect your capital.
Basically, you do cut-loss so you don’t to place yourself in a position where it will be difficult for you to to recover in case of a huge loss.

In this case, you sell the whole position (instead of just a portion of it) because the price action invalidates the reason why you bought it in the first place, meaning your trading plan thesis no longer holds.

Selling can be set in the form of fixed percentage loss, but normally I’d place it in breakdown of key support levels – whether moving average or static support levels.

How about you?

Have you tried selling at a loss?
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Keep safe & happy learning.
Omeng
P.S  More video lessons available at my YouTube channel.
Check out my video on market timing too.

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