Updated 29 May 2020
Ever bought into a stock, it went up but you didn't sell, and now it's underwater?
You'd probably be familiar with this scenario if you have
yet to define selling as important. Many investors, including myself,
are good at determining buys. Anything can possibly be a good buy (as
long as it goes up), but when and how should we sell our stocks?
Not having any selling skills is as good as a pilot not knowing how to land his plane. I would be worried if I were sitting on a flight with a pilot who has excellent taking-off skills, but zero landing skills.
To make the selling alittle easier for you, here are 3 methods you can incorporate into your trading:
1. Selling Half Method
Many investors don't consider the strategy of selling half, because as
humans, we often trade with behavioral biases that cause us to act on
emotion.
You may have faced one of these scenarios:
- not selling your losing position and waiting for the stock to bounce back,
- selling a winning position too early or
- selling a losing position too late.
Behavioral experts call this "Regret"😂. As humans, we usually try to
avoid the feeling of regret. "Better sell first before I regret",
"Better hold, maybe it will come back" etc. The "Selling Half A
Position" strategy is a simple yet effective method of trading. It can
help you to stay alive 😇 in the stock market and protect your capital.
Example
Let's suppose during a sudden drop, you bought 2000 shares
of OCBC at $9.52. Giving a 8% loss threshold, you would set your
stop-loss at $8.76. Say, the stock goes up 8% in your favour to $10.28.
You can sell half, ie. 1000 shares @$10.28. By taking half profits, even
if the stock moves back down to $8.76 and tiggered your stop-loss for
the balance portion, you would have breakeven-ed (excluding fees &
commissions). If the stock continues to move up in your favour, then at
least you would still have half a portion for riding the uptrend.
2. Use Long-Dated Sell Orders
Long-dated orders are orders that you can queue for more than one day,
for as long as 30 days. By default, orders expire at the end of each
trading day. When it does, you would then place a new order everyday.
Having a long dated order means you only need to place the order 1 time.
Looking too much at the stock market and trying to second guess the
stock's direction can tempt you to chase prices.
By placing a long-dated sell order, you are forcing yourself to determine a selling price which you are comfortable with, and a price that realizes your profits.
No
selling means no realised profits. Long-dated orders are easy to place
and is available on Lim & Tan's Online Trading Platform/Mobile Apps. To place a
long-dated order on the platform, please view this article: A Good Habit: Placing Long-Dated Orders.
3. Use Advanced Stop Limit Order
This method is useful if the stock price has gone up and you wish to
place a sell order below the current trading price.
A good example would
be Genting Singapore. The stock ever hit $2.60 but I'd come across many
investors who still hold the stock ($0.80 now). What had previously
been profits are now turned into paper losses. Having a stop-limit order
in place can help safeguard your profits.
However, due to its
complexity, this method is recommended more for intermediate investors.
Please view this article: How To Preserve Your Profits With Advance Stop Orders.
Learning to sell is a great way to protect your capital and is a
defensive way of investing. Till date, I'm still working on this and
usually nervous when selling :)
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