Have you ever held onto a great stock only to give back all your profits?
The emotions of fear and greed can often cloud our judgement. When we have had a good run on a stock, the temptation is to often let greed get the better of us. We often tell ourselves things along the lines of:
- “I best not sell now as it will go up 50% more”
- “All I need to do is hold it another month and lock in some more profit”
- “I will lock in my profits once I have made a further $5,000”
Conversely, when a share starts to fall, the emotion of hope and fear kick in and we start to convince ourselves along the lines of:
- “I hope this will come back to the price where I bought the share, then I will sell”
- “If I sell now, I will realise a loss and I do not want to do that”
- “I have lost so much already, no point selling now, surely this stock will come back up”
Take away the emotion by applying the 4 Steps to Protecting Profits.
Step 1: Look for price falling away and volatility
Step 2: Price falls below the 40 Day Moving Average
Step 3: Relative Timing drops below 1
Step 4: REC = Sell
This powerful technique will take one of the hardest thing we can do as investors – when to sell – and make it a simple process. In the video below, I have used the example of Bellamays – a stock having hit a high of $15.38 per share on 24 August 2017 and currently trading under $5 a share as of 7 February 2017. The 4 Steps to Protecting profits technique noted the exit at $11.97 a share – saving you from a fall to a low of $3.73 on 11 January 2017 . This powerful technique can be applied to any other shares you currently own or are looking to own.