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The 3 Biggest Mistakes Investors make when it comes to selling their stocks and a simple three step solution

By VectorVest Asia Pacific

The 3 Biggest Mistakes Investors make when it comes to selling their stocks… and a simple three step solution

In this article I hope to give you a few quick and easy techniques to know when to sell your stocks!

Have you experienced:

  • Holding onto a stock, watching it drop and hoping it will come back?
  • Having a profit in a stock, not selling it and then eventually selling it for a loss?
  • Buying a stock and watching it go down right after you bought it?

You're not alone. Knowing when to sell a stock is the most difficult thing for most investors. Not knowing causes frustration & anxiety and typically leads to losing money.

Understanding the three biggest mistakes investors make when it comes to selling stocks will reveal WHY selling a stock is so difficult for most people.

BIG MISTAKE #1— YOU THINK OF THE MONEY FIRST

I know, the main goal of investing is to make money, but your goal as an investor is to make the best trades. You should write that down and underline it. “My goal is to make the best trades” If you make the best trades, money will follow from that.

BIG MISTAKE #2 — YOU TRADE BASED ON EMOTION

We've all been there. We let emotions get the best of us. Put a tick next to any point below that has happened to you:

  • GREED—You had a profit in a trade, but didn’t sell because you wanted to make more.
  • HOPE—A stock you own is down, you don’t sell because you hope it will come back.
  • FEAR—You own a stock and are afraid it may drop quickly. Perhaps you risked a little too much of your money on that trade.

If you made at least one tick, keep reading. You’re in the right place.

BIG MISTAKE #3— YOU GO INTO THE TRADE WITHOUT A CLEAR EXIT STRATEGY

The main reason emotions creep into your investing is because you enter a trade not knowing exactly when you will sell it. If things don’t go well, when will you sell?

SO WHEN SHOULD I SELL A STOCK?

STEP #1— SET YOUR MAXIMUM LOSS

To set your maximum loss, you can consider this guideline: Only risk losing 1% of your total capital on each trade. In other words, set your stop price so your maximum loss on any trade is no more than 1% of your total capital. Here is a helpful formula you can use. For example, your trading account is $100,000, 1% of that would be $1,000. If you invest $10,000 in a stock, risking no more than 1,000 would equate to a 10% stop loss.

STEP #2— NEVER GIVE BACK MORE THAN HALF YOUR PROFIT

You should have a profit objective and never lose more than half of that. I would suggest starting with a profit target of 10% and once you hit 10%, make sure you walk away with at least 5%.

STEP #3— BUY THE RIGHT STOCKS AT THE RIGHT TIME

What are the right stocks and what is the right time you ask? I think it would be better to start by explaining what the wrong stocks are.

Wrong Stock # 1

Stocks moving down in price. One of the worst things that investors get taught is to buy a stock that is moving down in price. There is hardly a worse thing you can do. There is a well-known saying, “Don’t try and catch a falling knife.”

Wrong Stock #2

A Volatile Stock with falling earnings. Owning a volatile stock makes you nervous & worried about what the next day’s trading may bring. Chances are, if its volatile now it will be volatile in the future. Maybe some of you recognize this stock?

Chart 1

(the blue line is forecasted EPS with the line above is the price)

SO WHAT TYPES OF STOCKS SHOULD YOU LOOK TO BUY?

Buy Steadily Rising Stocks with Steadily Rising Earnings in a Rising Market. You can look at more sophisticated techniques once you’ve nailed this for 6-12 months. Here is one such example right now, do you recognize this stock?

Chart 2

(the blue line is forecasted EPS with the line above is the price)

Want to know more on how you can too become a stock picking expert? We have an upcoming workshop in October, you don’t want to miss this – click here to register!

 
VectorVest

VectorVest is the only stock analysis and portfolio management system that analyzes, sorts, ranks, and graphs over 23,000 stocks worldwide (U.S., Canada, U.K., Europe, Australia, South Africa, Hong Kong and India) for value, safety, and timing. VectorVest gives a buy, sell, or hold rating on every stock, every day. VectorVest also provides stop prices, forecasted earnings, earnings growth rates, dividend yields, and a whole lot more. VectorVest is the only service that combines the power of fundamental valuation with the insight of technical analysis, and uses a market timing system to buy low and sell high. VectorVest will show you how to make money in both up and down markets.