Very often traders make the mistake of thinking that holding a stock for a long time would bring them bigger profits.
This “never sell” strategy works perfectly during lengthy bull markets, but it can lead to major losses when a bear market eventually arrives.
To help relieve some of these challenges, here are a few time-tested selling strategies that work for many successful traders.
- Buy late and sell early:
Most traders have been trained to “buy low and sell high.” While that is a great goal, the reality of trading is that getting the timing right is incredibly difficult.
Legendary stock investor Bernard Baruch, once said: “I always buy too late and sell too early.”
Buying late means that you do not try to get the lowest possible price. Instead, wait patiently for the stock to prove it is a winner.
- Sell losers quickly:
Here is a rule to follow: Try to sell winners slowly but sell losers quickly. Some investors might not agree with this, but the alternative is risky: keeping losers too long until most or all your profits have vanished.
I can tell you from experience that once you identify the loser, you should sell at the first opportunity. That one rule can save you countless amounts of money. Face reality and admit you are wrong. Then move on.
- Take profits regularly:
This one might seem obvious, but don’t forget to periodically take profits. In addition, it’s essential to review and analyze your portfolio regularly and make selling decisions, such as dumping losers.
If you have extreme gains, bigger than you ever imagined, it would be only prudent to book some of the profit and diversify into other financial products.