Selling off requires lots of discipline & determination because this decision determine whether we lose money, make money or make less money. It is not uncommon that we fail to execute or change of the exit plan depends on what we see, what we hear and what we feel.
Below are my “own guidelines” or “rules” when selling off my positions:
- When the profit target is met (for momentum investing) or the stock price exceeds the intrinsic value (for value investing). I normally sell off 50% of my position to take profit and leave 50% to let the stock price continue its course as long as there is not trend reversal spotted in the chart.
- When the stock price reverse its trend when the reversal pattern (e.g. head & shoulder, double top or triple top, etc) is formed.
- When the stock price starts the down trend & the stock price below 20D, 50D and 200D MA. This is a very tough decision to make to cut loss and I have to keep reminding myself that I can buy the stock back at lower price next time! I look for opportunity to sell when the stock rebounds on a down trend.
- When the price move sideway for a long time unless this is a dividend stock. I can use my money to invest in other stocks for better gain.
- When there is a fundamental change in the stock and I don’t foresee the stock price will rise in the near future. I sold Creative Technology which close to 40% loss because Creative Technology has lost its competitive advantage in Sound Blaster and its MP3 products.
Though I have worked out my entry and exit points, I still have to take full control over my emotion of Greed and Fear and need to have very good discipline to stick to my trading rules. I am learning to control this emotion every day & every trade, having buddies like Wilson & Daniel help me a lot in improving in this aspect.