Everyone believes that the most important part of trading is determining when to buy a stock, it isn’t. The most important part of trading is determining when to sell a stock.
You can buy a stock at the absolute best possible time, but if you sell it at the wrong time it can make a potentially great trade a breakeven or losing trade. You do not make money until you sell a position.
It can be very hard to remember that. Ever trader will have those days when they buy a stock and it goes up 20% in 1 day. It makes it hard not to walk around saying I made so many thousands of dollars today in the stock market, but until you sell you haven’t made a cent.
So, how do you determine when to sell, when should you say you have a big enough profit, or a big enough loss and you should exit? The better question is when do you decide that. You should always decide when you are going to exit a trade before you even enter.
You must decide how much of a loss you are willing to take or how much of a profit you are willing to let stack up before you sell and pull your money out. This should be done prior to each trade.
If you find yourself in a position where you are trying to figure out whether you should close your position or let it ride remember your rules. What would your basic rules and guidelines tell you to do in a situation like that? If you didn’t make an exit strategy before you entered the trade close out of your position immediately. Always develop an exit strategy first.
There are a variety of methods out there that can help you to find the best time to exit a position. My personal favorite way is by using chart patterns, but you can also use fundamental indicators to help you develop an exit strategy.
For more information about chart patterns visit http://www.stocks-simplified.com/chart_patterns.html
For more information about fundamental indicators visit http://www.stocks-simplified.com/fundamental_analysis.html