Buying is always easier than selling. When you buy stocks, you feel hope and optimism. It is a pleasant experience. But selling is the opposite. If we are selling for a loss, we are accepting that we were wrong and taking an action that will cause pain. It is a very difficult emotional move. But even if we’re selling with a profit, we will always question whether we are getting out too early and leaving money on the table.
Try to never let your emotions play a role in a selling decision. You must have an exit plan from the moment you enter a trade because emotions will often lead you down the wrong path.
Here are 2 ways to set up a selling decision ahead of time:
1. Use trailing stops
By adding a trailing stop once I buy a stock, the decision to sell at a certain price has already been made.
2. Position size appropriately
Never buy so much of an investment that you can’t recover if it becomes a loser. By keeping your position sizes small (e.g. maximum 5% of your stock portfolio), you can withstand a problem in any individual investment.
Make sure you have an exit plan in place. Don’t watch your profits blow up in smoke when a big downturn appears.