Do Not Sell Your Stocks Randomly
This is obvious advice and almost ridiculous to make an article about it, but selling stocks randomly is what countless people are doing everyday and losing money without understanding. When you buy a stock, you should at the same time have an exit strategy, some point where you would sell without asking yourself any question.
On the other hand, what some stock investors are doing is playing with their emotions, which is very similar as selling stocks randomly. Mixing the stock market and stocks is a bad combination, it’s like investing when you are drunk; you are no more in control of yourself and your judgment is altered. Fear can make you lose more money that you can not afford to lose; fear can make a 50% profit turn into a loss, fear can make you enter a trade when you should stay out. Fear, anger, joy, and stress are all the same thing when it comes to trading, they are bad for your wallet.
However, these emotions in trading get even worse when it comes time to selling, that is, after you entered the game. Stress and everything else that comes with it is nowhere near as high and influential than when your money has already been invested. Once you invested, these psychological states makes your selling points random, they make seem your random actions seem logical.
An excellent way to prevent emotions from influencing your decision is to make your decision before these emotions are created. Deciding of your selling point and exit strategy before you even buy a stock is not so hard at all, and even more important, it is necessary for a winning strategy.
If you aren’t too familiar with exit strategies, here are just a few that will improve your trading. A stop loss is the most simple strategy. When you buy, you also include a stop loss which is usually in percentage. Any price of the stock below this percentage will bring an order to sell. Make use trailing stops. This is an excellent way to secure profits and limit losses. As the price fluctuates, your selling point moves accordingly. For example, if you bought a stocks for $30, and set a trailing stop loss for 10%, your original stop is at $27, but if the stock went straight up from $30 to $35, your new stop is at $31.50 (90% of $35) guaranteeing you a profit and limiting your losses all at the same time.
It is beyond the scope of this article to discuss complex strategies for stop losses, but understanding that selling with emotions is no more different than selling randomly is good enough for a start.