When to Sell Stocks
One more important place I’ve learned to always use classic price type stop-losses is in a very tough stock market, such as the one we’ve been living through in 2008-09. This is not the time to be greedy. Consider yourself fortunate if you get something right and score in a tough market like this. Ignore what you wish. Ignore the fact that you hope to win big, long term profits. If you buy a stock and the price goes up, and then you see the mood of the market rolling over, set very close stops right under the current price. Ride the price up a little further if things go that way, but let the market take you out of the trade, if it must. Do not, in a tough or doubtful market, give back profits. This is where judgment comes in. I’m going to be flexible enough to let my plan work, but very rigid about giving back money I’ve already made. Again, this is a rule for a tough market, not a constant.
Many less experienced amateurs will be so eager to preserve the win that they sell while the stock is still on the rise, because they set some kind of predetermined sell level. “If it goes up 15%, I’m out.” For as long as you and I are together, I’m going to keep reminding you, the big winners do not try to be fortune tellers.
The correct play here to allow for unexpected good luck – to allow for more upside - simply put tight stops immediately below the current price level. If the price falls, the market takes you out. But if you get lucky and the price rises, you ride with it and soon move your stop-loss up to preserve the new lucky profit too. Since this is so important, the source of so many losses, and the subject of so much debate, I’ll review.
*Excerpts from "A World without Borders" by Dan Frishberg
