Retaining Losing Shares and Selling Winning Shares

Retaining Losing Shares and Selling Winning Shares

Most people hold their losing shares in the hope that these shares will return to the breakeven point, and they also sell the winning stocks early to keep the profit. Unfortunately, strong stocks usually continue to rise, and stocks that lose value continue to fall.

There are many exceptions, but in general, if you keep the winning stock positions and get rid of the losers, you will definitely see a significant improvement in the results of your investments. But most people do the opposite: when they have a winning stock, they sell it once they get a small profit, and sometimes they miss the big move. And when they have losing stocks, many tend to hold them in the hope that they will reach the breakeven point.

One of the strategies that investors use is to buy when the stock falls, in which investors buy more shares from a preferred stock when its value drops, and although this strategy may succeed sometimes, it is, in my opinion, a risky strategy; Because the stock will mostly continue to decline. And I've seen this happen with many leading stocks.

Especially technology and financial stocks that looked indomitable. In a weak, low-priced market, any share may fall. Another lesson: the stock may rise or fall to a level that you did not think could reach it.


Not using market indicators

Whether you are an investor or a trader, you should consider stock indices. There are dozens of indices like the Dow Jones Industrial Average and the Volatility Index among others, and the most powerful of course are the market itself. So you should get used to monitoring the market completely for signs.

For example, if the stock is rising, will it rise at a strong size or a weak size? Did the market start strong in the morning and ended weak in the afternoon? Is this a downtrend, or did it start weak in the morning and end up strong at closing? This is a downtrend.




In addition, use basic indicators such as Moving Averages | To determine the direction of the market. If the market is up and the market is bullish, use bullish market strategies. If the trend is down and a bearish market or correction occurs, use bearish market strategies.


Related article: Slow Fundraising Strategies


Do not track errors

One of the advantages of being a beginner going is that it wouldn't be surprising if you lost money. I know this sounds tough, but this is the learning tax that almost every learner pays for the first time. But the key is to reduce your losses as much as possible by trading in small amounts and by not borrowing money to invest in it.

Making mistakes is expected, but you should not repeat the same mistake again, and again we all have weaknesses. Some people buy shares based on questionable advice, others hold the losing shares longer than necessary, and others invest without having a well-established strategy. When you make mistakes and lose money, write them down in a trading notebook.

In your notebook, list the reasons why you bought a stock, where the idea came from, and what you expect from the stock. Also write the date, cost, and commission. Write down your target price, the price at which you plan to reduce your loss, and the preset exit price, and if possible, describe the technical style that encouraged you to make a trading decision, your goal, in the beginning, is not to make a fortune (although that would be great) but to be A better investor. If you can do that, instead of investing or trading for several weeks or months, then you can learn to trade to a late-life.


Not planning for the worst:

Before entering the market, be prepared and not afraid. Although you should always know that profits are possible, be prepared for the worst. The biggest mistake investors make is the belief that the stock will not fall; They are not prepared for an extended bear market, recession, correction, or unexpected event that is destroying their investment portfolio. Even if you don't expect a financial disaster, know when to shrink your losses and sell the stock. Build your plan on common sense and judgment, not on fear.

One of the reasons I survived even after making many mistakes is because I am using a number of strategies to protect my investment portfolio, especially if I see evidence that the current trend will end. When I'm sure (based on pointers). Sell when the bullish trend falters, or buy when the downtrend is reversed, and based on technical or fundamental analysis if you think that a correction or a bear market is imminent.


Here are several steps you can take to protect your investment portfolio:


1. Sell the shares and transfer to cash

Cash is a comfortable situation in which a person is present when the economy suffers and the market falls. One convenient option is to wait and see, until the market recovers. If you acquiesce in the market, one way to win is to have plenty of cash when stocks are sold at a low price. When you have cash (including Treasury bonds if the market becomes too scary), it is easy to make unemotional decisions about where to put your money afterward.

The problem with cash - as you know - is that you can lose money because of inflation, but it is better than losing more money in a falling market. However, to keep emergency reserve money after a restricted antidote to fear.


2. More than study

If we have already entered a declining market for a long time, use the time to study the markets, read books and focus on fundamental and technical analysis, and when the market recovers (so far, the market always recovers), you will be prepared with a set of good ideas about stocks.

Conversely, if we are in a prolonged bull market and do not have cash), I find it useful to read books on the market meltdown a year 1929, or a book, by Manias Panics, and Charles Crashes. Kindleberger, "This will help you to continue to act wisely and pay attention to signs that people are irrationally excited. I also enjoy reading the sufferings of an overt seller Jesse Livermore. For more, you can refer to speculator article Jesse Livermore from Wall Street myths.



3. Develop bearish market strategies

Although short selling is not a beginner's liking, you can purchase non-debt reversible funds that make money when the market falls. Use these funds as a hedge against long equity positions or as an independent strategy to make profits from a weak low-price market. You can also buy protection shortfall contracts.

Important note: correction situations and bearish markets usually do not last for more than a year (of course there may be exceptions); Therefore, it does not maintain short positions for too long. Create an exit plan, as you would when buying stocks, awaiting a high price. For more information, you can refer to the article How to buy bearish stocks to achieve profits



The belief that the market is subject to logic

Unfortunately, the market and its participants are not subject to logic. As British economist John Maynard Keynes once said: "Markets can be more irrational than they can remain available." If you are looking for logic, play chess, the market often behaves irrationally; This is the reason why many smart people lose their money in the market. The economy may experience high levels of unemployment and high government debt, yet the market is rising significantly.

The bottom line: The only fact is the performance of the market, and everything else is just noise.


You do not know how to lose money

This can be hard to believe, but the best way to become a better investor is to lose money. Most of the experienced investors and speculators believe that you are learning more from your losing stocks than you do from the winning stocks. In fact, one of the worst things that can happen is that you think you can defeat the market (especially in the booming market). Before you have a chance to earn from your winning shares, most of your earnings may disappear.

If you lose money in the stock market (or in any other financial endeavor), turn this incident into an educational experience. Believe me, I am talking about the experience. I learned more from my losing stocks than I did from my winning stocks. Determine if the strategies that you (or your financial advisor) use are on the right track. In order to protect yourself from mistakes, learn to limit your losses, and protect your gains.

As I have said repeatedly, losing money is to be expected, but the refusal to reduce losses shows a lack of discipline. One of your goals is to learn how to deal with your losing positions (in addition to winning); This means being disciplined to develop a trading plan, reduce losses and be patient to wait before buying a position.


Take action:


As I said before, if you lose more than 7 or 8% in a position, this is not the time to provide justifications and pretend to be just paper losses. Remember that in the marketplace, everything isn't going as expected. Those losses of 8% can turn into catastrophic losses of 50%, and for this, it is necessary to reduce losses at a certain point.

Then review your investment strategy. You must analyze each of the shares you still own. If you are losing money (only the ones mentioned in the scorecard are counted, you may need to sell the losing stocks now and reevaluate.

Add comment

Add comment