A valued reader asks this question, which is on the top of the mind of every investor: How and When to Book Profits, when going is good and stocks are trading in your favor.
What approach do you take while selling stocks ?
A lot of times we find buying easy but selling difficult , we always think that price could go a notch higher and end up keeping that stock for a much longer period or seeing it through its peak as well as through its bottom on the chart and sell it somewhere in between due to frustration of waiting for the right moment.
Many a times post selling the stock it rallies to a new level. Which results in anger or frustration of having missed 3-4% profit in haste.
I have seen many people keep investing in long term stocks and never sell those for almost 10-15 years. But in those 10-15 years we might see market crashing down many times & then people panic and very often than less sell those stocks at half their previously attained peak value.
How do you take call on selling stocks ? for short term and long term ? especially long-term stocks when you feel like holding those stocks forever.
How should one be confirmed of the peak value & be satisfied with the profit gained and not feel sorry for having missed the next rally ?
A simple approach I can suggest is to divide the total shareholding for a given stock in three parcels - Sell first parcel e.g. 33% holding, when you reach your first target. Sell second e.g. 33% again, when you reach your second target and keep the third parcel, which is remaining 33% of share, with you.
Now obvious question: How to determine the first and second target. It depends on what you need from market and your time-frame!
e.g. For smaller time-frames (1-3 months), you can keep first target as 25% gain and second as a multiplier of this.
For longer time-frames, e.g. 1 year or more, you can hope to get a 2X gain as first target and 3X as second target and let the third parcel grow.
This is just one simple technique. Selling stocks is much difficult than buying them. Hope this helps for you to develop your own technique.
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