This is as idiosyncratic to the individual as I suspect their trading style is. Knowing when to sell isn’t an easy task.
I try my best to simplify my life and tend to lean towards “half and quarter moves”. This is entirely for profitable trades.
What I do to manage an anticipated loss is discussed in “How I Manage Losses”.
At any rate, let’s look at my recent Second Quarter Portfolio pick SWHC. Sometime in May this company was placed on my list of stocks I intended to long. With an initiation price between $20-$22.
While I always argue, I NEVER know where a stock is going; I simply play odds; I guesstimated that if my thesis comes anywhere near to being correct; this stock should eventually work its way up to $30 and beyond.
If you are a free subscriber; you’re well aware that we didn’t get from our initiation price ($21.87) to the stocks current level in a straight line. Look at the chart below. You will see some consolidating, followed by an uptrend, followed by a sharp decline, followed by more selling, a triple double, grand slam, touch down, field-goal, 3-pointer and every thing in-between.
The point I am trying to convey is, do you hold the entirety of your position until your “target” is hit?
For me, the answer in short is, no. I scale out of winning positions.
I trade off of a point system; therefore my scaling generally deals in points as well. Sticking with the SWHC example; I entered the position looking for 8+ points. When the stock reached half way to my destination (+4 points or $26) I shaved off a percentage of my holdings and locked in some profits.
When it came close to my target ($30); I locked in a majority of my holdings at $29.98.
And considering I have absolutely no idea how far my winners will take me, I allow the rest of my shares to take me beyond my target. And will hold until my thesis has changed.
Again, this isn’t a strict rule you have to follow (in fact, you don’t have to follow at all) but entry price/exit price is as crucial to successful trading as patience and discipline.
Care to share your “When to Sell” story. Good, Bad or Ugly comment below.
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