Rules for when to sell a stock

OmegaTrader said:

1) if your strategy tells you to sell
Part of the development of a plan/strategy would include when to sell,buy etc. This would be different on an individual basis.

2) something is going wrong
Maybe if circumstances or underlying assumptions have changed then re assessment may be to sell out of the trade. This would counter the strategy rules but would probably be before the strategy trigger to sell has been implemented.

3) You are killing the strategy
One is not investing anymore, retirement, need the money, strategy stops working etc etc

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Ah ok. Just curious say your stock falls 15% for example do you think about why it possibly fell and requestion your analysis even?

RandomInvestor said:

Ah ok. Just curious say your stock falls 15% for example do you think about why it possibly fell and requestion your analysis even?

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Of course! Show me an investor who claims his analyses are always correct, and I'll show you a conceited liar. And it doesn't take a drop of 15% to amend an analysis.

The best advice I received as a beginner, and would urge every beginner to pin on top of the wall above the computer screen, is -
"Before you even buy a stock, write down your reason, your expectation, your time frame. And when you have bought, regularly check the stock's actual performance against the written criteria - and have the discipline to act."
If you fail to heed that advice, you will ultimately fail to be successful.

I agee, keeping a decision journal is a really useful exercise. It helps a lot with controlling the self delusion we all unconciously engage in!

RandomInvestor said:

Ah ok. Just curious say your stock falls 15% for example do you think about why it possibly fell and requestion your analysis even?

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DYOR This is NOT advice

No one can answer that question. It depends on the strategy. A technical trader may be out already. A fundamental may reconsider the situation, A passive investor may still be holding. A techno-fundamental may ??? depends


Following on from previous post.

Say three hypothetical examples: A passive market follower, A Pure fundamental investor , Technical trader

Passive

Passive follower knows nothing. Works 9-5 is busy and just purchases market tracker/ market tracking portfolio every 3 months. No analysis, limited time. It is a bet on the future of the Australian economy.

1) The strategy says never sell.

2) If something goes wrong.... Well.. The analysis can't be wrong because the follower knows nothing. Just sit there and hope it turns around. Which it has for the last 100+ Years ???

3) killing the strategy. The follower retires and wants to spend the inheritance. Needs to pay expensive lawyer or medical bills, nuke hits australia etc etc

Pure Fundamental investor

1) The strategy is to beat the market by identifying undervalued companies. The strategy says not to sell unless fundamentals have changed. Fundamental doesn't care what the market price is day to day. F thinks price has fallen 15% but the business is the same why sell ?F has has a long time to live. F thinks do people know something I don't ?

2) F realises circumstances have changed. Maybe the company has consistently earnings lower than the earnings F estimated. Perhaps the industry has changed etc etc. F re-analyses the situation and finds that it is better to sell or maybe it is better to buy, it just depends. Hopefully F learns from the mistakes and opportunities.

3)F realises he can't beat the market and gives up or retires with his riches and spends the inheritance.


Technical trader

1) Strategy says sell at point x or resistance or support etc etc. Once the stop is hit TT sells. No excuses. TT has researched the strategy and found the applicable stop levels and postion sizing etc etc

2) The price is moving differently to what TT thought. TT pulls the trade early or when the stop hits. TT analysses his decsionmaing or his algos decision making to see if this a profitable decsion

3) TT strategy is not beating the market or economically viable or TT doesn't trade anymore. TT kills it.

pixel said:

find more at: http://rettmer.com.au/TrinityHome/Trinity/Musings.htm#onshareprices

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Good one Pixel.
No pun here but my wife often challenges me investing on shares and losing money instead of keeping them on fixed term deposit for a steady return than losing the capital.
I could not disclose the hidden addiction of mine on playing stocks.
Of late I have ben apply applying her and now your advice before putting any stock investment and to ratify its value. Past loss can not be recovered but the new strategy is working well.

I'm pretty well on a similar Page to Quant.

System/systematic trading -- exit rules are simple just follow your blueprint.
OR adapt to your daily runs.

However in a Discretionary trading environment I'm not surprised at some of the answers.

I have 2 very strong and strict rules on exits.

(1) Preserve initial capital.

Here I'm ruthless. If I see a setup which triggers only to fall immediately below my buy trigger
I'm out and I don't care if that happens 10 times straight.

Its been my experience that the number of times my stop loss is hit after a direct U-turn way exceeds the number of times a
trade reverses out of a reversal straight after a trigger and then heads skyward somewhere above my initial stop.

I place an initial stop for position sizing only. It only gets hit rarely when it reverses very hard after an initial trigger.

This helps my capital risk on each trade to be between 1-.5% with a lot exited at B/E.
I'm more than happy to place it in a watch list for another opportunity. Many great trades come from re entries!

I hardly see this mentioned here or anywhere (Re-entry) Most prefer averaging DOWN--to me a gamble more than a
trading strategy---martingale.

(2) Preserve profit.

There are 2 areas I'll give a little more reign.
(1) Trading in the first week ABOVE the Trigger.
(2) A more mature trade which is developing a pattern during a pause
above a pattern trailing stop. In other words if a bar destroys a potential
pattern to the downside I'm out.

Other than that its a bar by bar proposition read in context with volume, range
and pattern.
Id rather exit early and be re-entering a trade in quick succession than exiting late and lamenting
indecision and lost profit.


The bottom line is a number of good trades are eventually built while the weakest are discarded for minimal loss.
( Rarely having over 5 older trades open at the one time ).
These trades can and do go on to be many multiples of my accumulated losses.
It only takes days to re coup a string of failed trade drawdowns---not weeks or months.

Its something I've settled on after 20+ years of trading. Its comfortable and like riding a bike.
Really everyone should feel just as comfortable with their plan.

What I tend to see missing is the OBJECTIVE of the plan.
I have 2

There is a rule and it is dead simple: There is no need to sell until you need to spend the money.

Central banks and whoever in power will make sure that nothing bad could happen to the market. All dips can only be temporary and any dips are buying opportunities. In current low interest rate super accommodative 'new normal' environment, all investors need to do is buy.

Fundamentally, low interest rate means stock valuations always look cheap. Don't forget valuation fair price could go infinity if interest rate is 0.

Sentimentally, nothing could go wrong in this market. Every piece of bad news is good news nowadays. Rising commodity & energy price means demand pickup; Inflation pick up means world economy is picking up; Rising interest rate means we are on track with recovery; uncertain political risk means opportunity to reform; geopolitical tension means potential war and potential increase in industrial demand...

Although SPI futures currently down like what 20 points this morning before open, it will come back and past 6000 in no time. This is just another perfect buy opportunity. All you need to do is buy in a diversified (just fancy word of saying buying a variety of stocks), and don't worry about sell. Central banks and governments will ensure nothing bad could happen to the market.

gaius said:

Central banks and governments will ensure nothing bad could happen to the market.

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Tell that to the Japanese, or the Venezuelans!

galumay said:

Tell that to the Japanese, or the Venezuelans!

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or the Greeks, or the Irish !

As an investor, all I care is a strategy that earns me money. Frankly I'm not concerned what academically might happen. We all know that probably of accident while driving a car is greater than zero. You can worry all day and looking for opportunities to jump out of the car. The rest of the world will just keep moving on.

The market is extremely resilience. This kind of unnecessary worries is exactly how people got killed in this market.

I just can't see anything on the horizon that could derail the market. Just like Sydney property market, as crazy as it might look, the structure of the market means there's only one direction the market could go, and that is up.

Don't bother sell, but rather focus energy on how to increase your gearing. That's how to outperform the general market. The only rational thing to do in low rate environment is borrow to invest.

The question shouldn't be when to sell, but how to buy more.

^^^^^ This has to be a troll popping the popcorn and getting a drink to watch this , should be good >>>

*Pulls up chair besides Quant*

Wanna beer with that popcorn?

galumay said:

*Pulls up chair besides Quant*

Wanna beer with that popcorn?

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Well I know this might sound crazy to some, but the world is crazy. Believe it or not, today is just another example of good buy while some fearful people jumped.

Who knows, over the weekend, in this crazy world, Kim Jong Un might actually test fire a few missiles only for US to shoot them down. US people cheers for strong America overnight, media swiftly jump to conclude that Kim is no longer a threat, investors see geopolitical tension eased, market back to focus on economic fundamentals (whatever that means), oldguards who jumped out today can't bear missing out jump right back in, and the market continue its way up again.

When this sort of rubbish turns up
I seriously question why I bother writing
A page of info.

tech/a said:

When this sort of rubbish turns up
I seriously question why I bother writing
A page of info.

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gaius said:

Well I know this might sound crazy to some, but the world is crazy. Believe it or not, today is just another example of good buy while some fearful people jumped.

WTF

1) Gearing too much will destroy

2) Capitalism not communism.

Who knows, over the weekend, in this crazy world, Kim Jong Un might actually test fire a few missiles only for US to shoot them down. US people cheers for strong America overnight, media swiftly jump to conclude that Kim is no longer a threat, investors see geopolitical tension eased, market back to focus on economic fundamentals (whatever that means), oldguards who jumped out today can't bear missing out jump right back in, and the market continue its way up again.

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To help donkeys like me

tech/a said:

When this sort of rubbish turns up
I seriously question why I bother writing
A page of info.

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I don't get those so call rules/trading strategies. Those things do nothing good but give people an illusion of having control in the market where they have absolutely no control of.

Look at how the market structure today, there isn't really any need for those old-school trading wisdom. The market simply biased towards the upside and just keep rising. It isn't really a question of when to sell. The key is how to buy more.

gaius said:

I don't get those so call rules/trading strategies.

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You wouldn't. You've not investigated or used them.

Those things do nothing good but give people an illusion of having control in the market where they have absolutely no control of.

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A naïve comment.
You can control when to buy and when to sell
When to add
When to watch.

You can do all of the above Today/Tomorrow/In the next Hr/never. That's control.

Look at how the market structure today, there isn't really any need for those old-school trading wisdom. The market simply biased towards the upside and just keep rising. It isn't really a question of when to sell. The key is how to buy more.

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Personally its a question of maximizing profit and minimizing loss.
Having my hard earned working for me in the most efficient way I can design.
Constant buying without selling (For me) doesn't cut it.

gaius said:

Don't bother sell, but rather focus energy on how to increase your gearing. That's how to outperform the general market. The only rational thing to do in low rate environment is borrow to invest.

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Storm Financial group uses that model quite successfully. You should try to contact them.

skc said:

Storm Financial group uses that model quite successfully. You should try to contact them.

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Interest rate is low, money are cheap. It would be stupid not to borrow more.

I'm not going to worry about things that could not happen. How much could the market possibly fall? 500 points? I give it 1000 points max. We live in the 21st century now. With all the advancement in technologies, regulations and central bank policies. Things like 1929 crash simply cannot happen in the modern world.

Buy and don't sell works reasonably well in a secular bull market. You won't make the maximum possible but it's an easy approach and will make you a profit as such assuming you're buying something which tracks the index or a reasonably diverse range of individual stocks. In a secular bull you'll make money simply by being in the market with reasonable diversification.

In a secular bear market however it's a very different story. Just throwing money at the market (eg into an index fund or just buying a range of individual stocks with no real research) is a pretty sure way to lose money or at best not make anything more than you'd get far more safely and easily with a bank deposit.

Looking at the US market, since that's what a lot of my research focuses on, it's very clear that there has been a bull market for the past 8 years. It is also apparent that the market is now in the third and usually final stage of that bull run. Just throwing money at the market (index fund etc) at the beginning of the bull would have made money for sure but doing that as the end approaches is likely to produce a very different outcome....

Saying the market goes up and there is no point in selling after an 8 year bull run is akin to saying in January that the weather in Australia always gets warmer since it has for the past few months and that you won't need warm clothing or heating in the future. History says otherwise.

Someone who bought a generic portfolio of shares listed on the ASX in March 2009 and has held since then will today be far, far happier with their investments than someone who bought the same portfolio just 17 months earlier in October 2007, after which the All Ordinaries fell approximately 50%.