In hindsight it’s so easy to say, “Damn it…I wish I had sold earlier,” or “Why the hell didn’t I hold that stock longer??” But truly, when it comes to stocks, how do you know when to hold’em, when to fold’em…or just walk away?
This week, Melissa and I discuss various techniques and trading strategies to know when to Hold or Sell a Stock, especially in a choppy market. We also talk about the three things every trader should know when to hold or sell stocks.
Watch the Full Trader’s Mindchat Show episode here with Mike & Melissa
Here are the Top 3 Things Every Trader Should Know When to Hold or Sell Stocks
1. Make Sure You Have a Way to Assess the Market Environment.
Everyone will have their own way of assessing the market. Personally I look at:
- The major indexes
- The number of stocks making new highs and new lows
- The stocks setting up
- The stocks I am holding
If the trades I am in are making traction, then the market is giving me the green light to add. If on the other hand my trades are falling flat, the market is currently hostile to my method. In this case I’ll trade smaller or sit out.
Look at your own portfolio performance, and if you have a universe list see how those ideas are setting up. The market is an infinite stream of opportunity If you don’t see trades right now, there will be other trades tomorrow…next week…whenever. Just wait for your pitch to hit. It’s OK to not be in the market 24/7, 365 days a year. Sometimes you need to walk away. As trader Jesse Livermore said, “There’s a time to be long, a time to be short, and a time to go fishing.”
2. How Much are you Going to Risk
A large part of how I figure out how much to risk comes from the market environment and my relation to it. If, for example, the market is choppy and I’ve been in cash, when conditions begin to improve I’ll slowly begin to re-enter. I’ll put on 1-3 new positions risking about 0.5% of capital on each trade.
The amount of shares I’ll buy depends upon my entry point and stop loss. I’ve created a handy calculator to help with this process AND let you know if you’re betting too heavily or too light. Check it out here or click the link below for “Position Size Calculator.
3. Don’t be Married to any Stock for the Rest of Your Life.
Every trade is eventually going to end in divorce. Stick around too long and you’ll end up giving back your profits! So stay in a trade that treats you well and continues to move in your favor. Once it stops and the relationship becomes abusive…get OUT! Just because you had prior success with a stock doesn’t mean you have to hold onto that stock forever. Not only are you being abused by this trade turned bad, you are also missing out on all the other trades out there. So kick that bad trade to the curb and see what else is out there! Remember, there are plenty of fish in the sea and plenty of trades in the market!
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