How do I plan my exit point?

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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.
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  • 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.

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Two key challenges in stock investing

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After trading stocks or investing stocks for few months, I conclude that there are two key challenges to overcome to be successful, ie.
1. Need to have patient to WAIT.
I have made mistakes that I have no patient to keep my original plan to stay out of the market until the major correction is over. I was to too eager to enter the trade two weeks ago after I saw the stocks under my watchlist meet my entry targets. Now, my money is stucked in those stocks while the market has started the correction these few days.
2. Control the emotion (basically Greed and Fear).
Sometimes the Greed and Fear overrule my rationale and take over my original trading plan. Some stocks were sold too soon due to fear and lesser profit made; some stocks were bought too early (worried that I may miss the uptrend) and my money got stucked as the stock price moved south or sideway.
I have to overcome these two challenges otherwise I will never be successful in making consistent money in the stock market regardless how good I am picking a good stock, doing a great analysis and developing a superb trading plan.
“Good plan is as good as none if I do not execute the plan with good discipline.”
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