As I mentioned in last week’s blog, this week I’m going to discuss my 2nd least favorite question that we’re asked all the time: “When should I sell?”
For me, there are only 2 basic answers to this question and it depends on which way the stock is going.
1: If it’s going against you, sell at or BEFORE your stop. Note: if you don’t know where your stop is, you never should have entered the trade in the first place! How did you decide on your share size if you didn’t calculate your risk?
2: If it’s going in your favor, sell when you are in the green. $$$
That’s it. Simple.
But so many try to make this so much more complicated. This how that conversation usually goes with a trader:
Trader: I’m up in stock XYZ, when should I sell?
Me: How about now?
Trader: Now? Why now?
Me: You have a profit, why not realize it?
Trader: Not sure if now is a good time?
Me: What’s wrong with now? You’re green! $$$
Trader: But I’m not sure if I should sell here. What if it goes higher?
Me: What if it goes lower?
Trader: Never mind…
30 minutes go by….
Trader: Can you believe that XYZ came back down to my entry!?
Me: Of course I can believe that, anything can happen.
Trader: I can’t believe it! I never thought it would come back down so far so fast! I can’t believe I’m now red on the trade! Why didn’t I sell it before!?!? $$$
Me: You’re still in it??? Where’s your stop? Why didn’t you protect your entry?
Trader: No way I’m selling this for a loss now! This thing is going back up!
Trader (in their head): Please, please just go back up to my entry… I’ll never do this again! I promise!
5 minutes go by…
Trader: Any chance you think XYZ is a good swing trade candidate?
Me: No opinion, I’m in cash by 4pm every day.
And the hold and hope begins…
So, what’s this all about? Why do so many struggle with this? I think it’s 2 things that are closely related but slightly different:
1: GREED: You want as much $$$ as possible and you’re not going to be satisfied unless you sell at the top.
2: Fear of being wrong: You don’t want to sell now because it might go higher. Selling too early isn’t all about the $$$ that you missed out on. Rather, it’s about somehow being or feeling wrong for selling too early.
So, let’s address both:
First with greed: The sooner you realize you’ll never buy at the bottom nor sell at the top, the better off you’re going to be. I’ve NEVER sold at the top and probably never will. That’s never my goal. I don’t enter a trade and think I must sell this at the top. I enter a trade, immediately look to protect my entry and scale out as it moves higher. Again, simple. I want a piece of the move. Any piece will do.
Your job as a DayTrader isn’t to buy the bottom and sell the top. Your job is to take your little piece of the move. If a stock moves $.28 and you got $.12, great job! If a stock moves $1.00 and you got .80, again GREAT JOB! Don’t spend too much time worrying about those extra $.26 and $.20 you feel you missed. Rather, spend your time looking for the next trade! The longer you trade, the more confident you get, the more you’ll take out of every trade. It does get easier, but you’ll never master it.
Fear of being wrong: Day Trading is the most humbling profession. It has this certain knack for making you feel like an idiot even when 30 seconds ago you were feeling like a genius. One thing I’ve come to terms with – I’m going to be wrong all the time. You must come to terms with this. Trading isn’t about being right or wrong. It’s about playing the odds and striking when they are in your favor. If a trade sets up with the proper risk/reward, you should take the trade. In the end, it doesn’t matter if that trade works or not. Not everything works all the time and that’s why you’ll never be right all the time.
When it comes to selling, you’ll always get it wrong to some degree. And that’s ok! That’s not what trading is all about. The market doesn’t care if you’re right or wrong. You shouldn’t care either. You should care about following all your rules all the time.
Now don’t get me wrong, you should always be fine tuning how and when you scale out of trades. Learning to hold more for longer is a big part of any consistently profitable trader’s journey and it’s a good problem to have. It means you’re already making some money. And you must be making some money before you can make more money. Unfortunately, some traders struggle with scaling out as well. They’re too “all or nothing” when it comes to selling. To be a successful long-term consistently profitable trader you must learn to scale out. Selling your entire position all the time leaves way too much $$$ on the table.
Hopefully some of you are now saying: “OK, I get it! I don’t have to sell at the top! But when should I sell some?”
That’s easy too! Sell when the chart tells you to. Here are just a few examples:
*Sell some when your stock gets to a whole number. Or even the .25 and/or .50 level on more expensive stocks.
*Sell some when it gets to recent resistance – either on a 15s, 60s or daily chart.
*Sell some when it hits a major moving average like the 200ma on a 5s, 15s, 60s or daily timeframe.
Basically, always “look to the left” on multiple timeframes to see where the stock is likely to hit resistance. When it nears that resistance, sell some in case it never breaks through. If it does break through, sell some when it hits the next area. And so on… And if you’re like me, you’ll keep 100 shares (The Wayne100) in case it continues to move higher all day. Do that and you’ll never miss a big move. You’ll at least have a few shares but you’re still extremely unlikely to sell at the top. Hopefully by now, you realize that should not be your goal…
So, the next time you ask yourself (or someone else) if you should sell, the answer is YES. Stop making this harder than it is. Just press the damn <SELL> button!
Coming up next week: My 3rd least favorite question. Just kidding! My next blog is all about my resolutions for 2017 and how I always approach a new trading year.
Questions? Comments? Just reach out!
Thanks for reading!
One last thing: If you’re struggling with “when to buy” and not sure how to time your entries, be sure to join us Tuesday night (Dec 20th) for another FREE webinar: Trading Inflection Points. Click here to register! Hope to see you there!