lucky enough to be invested in, how can you take a profit without
regrets? How often had you sold a stock only to see it rise another
5%, 10% or even more? If only you had been a little more patient!
There are several approaches you can take. You can sell all of your
position and move on to the next trade, sell a portion of your
position and let the rest ride, place a stop loss to automatically
sell your position when it drops to a certain price, you can buy put
options to protect against future downside risk or you can sell
options and agree to sell your stock at a future date at a set price.
Selling the stock outright. When you enter into a stock transaction,
you should always have a plan. If you are a trader, you should have a
price objective and have pre-defined exit points whether you are right
or wrong. If the stock price has reached your objective, take your
profit and look for the next trade. You can never get hurt taking a
profit but oh how it hurts when your objective had been met, you
didn't sell, and the stock declines! Follow your disciplines.
Sell a portion of your position. If the stock has reached your
objective but your analysis indicates that the trend is continuing,
consider selling a portion of your stock, possibly recouping your
initial investment. What remains is "the house money". With stock, you
can hold the position forever, even for generations, amassing wealth
with a zero cost basis!
Use a mental stop loss. Letting the stock ride can be risky business
but if you choose to do so, establish a price at which you will sell
the stock. Many charting programs have the technical tool Wilders
Parabolic. This is a great tool to use when stocks are trending. Each
day, the tool will change the stop price, enabling you to continue to
retain your profit. When the stock price falls through the stop
indicator. You should immediately sell your position. It is better to
have the discipline to be watching your position and have the
discipline to make the transaction at the market instead of placing a
stop order. While many professionals advise that you use stop loss
orders, if you have the discipline, don't use stops.
Buy Puts. Put options are the right to sell your stock at a pre-
established price in the future. It is the same as buying an insurance
policy on your position. While many step back from the thought of
buying such protection, keep in mind that you buy insurance on all of
your other valuables such as you life, your home and your car. Are
your investments that much different where you wouldn't want to
protect their value?
Sell Call Options in the Future. If your stock has run up
significantly, thing about what a good annual return would have be.
Are you content with making 10% a year? 15%? You can use options to
help you lock in such profits. Consider the stock XYZ which we
purchased at $50 a share. The stock has now run up substantially to
$76! An extraordinary gain but not uncommon in today's volatile
market. If you would have been happy holding the stock for the long
term and gaining 15% a year on it, over a two year holding period,
your stock would have risen just above $66 a share. If this was your
expectation, consider selling a two year call option at 65! For the
particular stock that I am watching, the January 2011 65 call option
is selling for $25! If you were to sell this option, you would receive
a premium of $25 a share or $2,500 (50% of your initial investment)
and should the stock remain above 65 in the years to come, you would
achieve your 15% annual gain.
Whatever method you use, always have a plan when entering a stock
trade. Don't ever allow losses to wipe you out. Remember, 'he who
sells and runs away, lives to trade another day.'
Secret Strategy That Turned $1,000 into $1.4 MILLION in Just 13
Months: http://pennystcjf.key.to/
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