Using Sell Signals to Improve Results
by Kate Stalter
There are three elements of successful portfolio management: buying, holding and selling. Yet many investors focus their energies almost exclusively on buying and fail to make a plan for selling.
It is crucial to find the best stocks and buy at the right time, but to keep profits, it is equally key to understand when holding is no longer the right move and the time to sell has come.
In this article
- First Sell Rule: Cut Losses
- Second Sell Rule: Protect Gains
- Third Sell Rule: Look for Signals in Stocks
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It is also important not to downplay how much emotions can interfere with decision-making. When it comes to selling, many people feel it is somehow wrong to let go of a stock, even when they have significant gains on paper. But it stands to reason that if a profit is going to be realized, selling is absolutely necessary.
Consider this: When the general market topped in March 2000, millions of investors did not understand the signals. It has been said that roughly 80 million people lost $7 trillion in the ensuing months because they held stocks that tumbled ever lower, rather than selling to keep their gains after the dotcom boom. By spotting critical sell signals, you can affect a big difference in investing results.
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