How to squeeze more cash from your trades
You spend almost all your time thinking of what stocks to buy…
But you only spend a fraction of your time thinking of what stocks to sell.
But selling is just as important as buying if you want to be a winning trader. And it’s also a lot trickier.
Because once you own a stock, you become emotionally committed. You’re no longer a bystander — you’re now an active investor. It’s your newest romance. It gives you butterflies. You want the stock to go up… no matter what.
That’s why so many novice traders turn short-term trades into long-term holdings. They get hopeful. They decide to give it one more day to turn around…
But that single day turns into a week. And then maybe a month. Soon enough, you’re sitting on a huge loss that’s eating away at all of your profits (and probably your soul).
Today we’re going to change that. I’m going to reveal 3 trading secrets that’ll tell you everything you need to know about selling. These tips will put you ahead of 99% of regular traders who don’t pay near enough attention to this critical topic.
So here’s the deal…
You’re never going to execute a “perfect trade.” No one buys at the bottom and sells at the top. It’s not gonna happen…
But I can promise you’ll squeeze more gains out of your short-term trades if you concentrate on when you sell…
Reverse your thinking. Put selling first and you’ll fix most of your problems. Tell yourself that selling a stock is your most important duty as a trader. If you put as much time and effort into each one of your sells as you do your buys, you’ll instantly improve your trading returns.
To help get you started, here are those three key rules when it comes to selling your trades:
1. Set Your Selling Strategy First
You’re not just buying random stocks when you trade, right? You have a plan you follow for every trade you make.
But you should also have specific rules for selling. And you need to make these rules before you enter any new trade. Before you buy a stock, you have to figure out your stop loss. Then you have to stick with it.
Preventing big losses is the first step to trading success. So take it seriously! You’ve decided to sell when a stock closes 5% below your entry point? Fine. Carve it in stone and stick with it.
It’s important to calculate your stop loss before you enter a trade to prevent any self-sabotage. As we discussed earlier, it’s all too easy to let your emotions convince you to hang on to a losing position. You’ll move your stop loss lower, telling yourself the stock will soon rebound.
But what you’ll find is that your emotional decisions will saddle you with twice as many losers as winners.
Set your trade parameters before your money’s on the line. It simplifies the entire selling process.
2. Protect Your Profits
OK, you’ve taken care of your losing trades. But what about trades that quickly move in your favour?
If a trade shows you fast gains, the best action to take is to sell half of your position — especially if the market is choppy. Taking early profits will help you make better decisions when it comes time to fully exit the trade.
Here’s a quick example:
Let’s say you buy a stock that’s breaking out and you find yourself up 15% in just a couple of days. You think the stock is headed even higher, but you decide to lock in half of your profits. After you sell half your position, the market moves against you. Your remaining position begins to move sharply lower.
But that’s OK. Remember, you already booked profits on this trade. So your decision-making process isn’t crippled by any doubts or unreasonable expectations. You booked your profits, so following your original trading plan and honouring your stop loss is that much easier.
3. Don’t Allow the Unexpected to Warp Your Mind
Unexpected events can cause you to make bad selling decisions. Your convictions and biases can be your worst enemy when it comes time to let go of a losing position. That’s why it’s so important to stay objective when a stock flashes a sell signal.
The market’s never going to react exactly as you expect. Don’t make a bad situation worse by trying to rationalise the market’s behaviour.
Let’s say a recent trade of yours gets knocked 20% lower overnight after a poor earnings report. Sure, you could rationalise that a 20% drop is probably an overreaction. But this information shouldn’t alter your trading plan.
Sell if the stock moves below your stop-loss target. Don’t let unexpected news freeze your ability to sell. Stay alert, honour your stops, and move on to your next trade.
When dealing with big loss, it’s easy to rationalize holding on. You’ll think that the stock has to recover, at least a little bit. But the market doesn’t are about you — and it certainly won’t play by your rules.
Hanging on to a stock that’s just posted a sharp loss is never a good plan. After all, there’s usually a good chance it’ll continue lower.
One Final Thought…
If you’re ever unsure about a stock you own, ask yourself this question:
Would I buy this stock right now?
If you wouldn’t buy the stock under its current circumstances, sell your position and move on. Putting yourself in the shoes of a potential buyer (as opposed to a hopeful stock owner) will give you a clearer picture of all of the possible outcomes.
Selling is 50% of trading. You can’t afford to screw it up…