Most investors never consider selling half their stock positions because they simply never thought of it as being a strategic play. When the circumstance are correct though, like for instance taking profits, you can help yourself effectively make more money trading stocks.
Stock Trading Tip
Learn to consider selling half your position in a given stock as a part of your strategy.
The typical investment strategy involves simply “buying stock xyz, holding stock xyz, selling stock xyz for a profit.” This is wonderful if you are holding for long periods of time (6 months or more) and want to sit through all the price swings, but the experienced trader knows otherwise.
The most common ways to implement selling half your position into your strategy include:
- selling half to take profits off the table
- selling half to minimize downside risk (losing our unrealized gains)
- selling half to minimize risk while taking profits off the table
- selling half to take profits off the table, then re-buying the shares at a more competitive price
Selling Half to Take Profits
Let’s say you are in Google right now (posted a chart earlier today) with the stock at new all time highs, and you bought at the break of $490. Well, you now have a decent unrealized gain under your belt. You could sell half your position at these new highs and seal some of your short term gains.
Minimize Downside Risk
Stuck in a position that you are unsure about? Instead of just selling out completely or tightening up your stop loss, selling half your position can minimize your concerns of the downside.
Minimize Risk + Take Profits
You are already up on your position but are unsure of the short term future, perhaps the company is set to post earnings or some big news soon, so instead of risking your profits and the added volatility, sell half your position.
Take Profits then Rebuy
This greatly depends on the situation and your own personal opinion of where the stock is going next, but let’s say the stock has a big day and you feel some retracement is due in the short term (next 2 - 5 days). If you want to hold the base of your position long term for perhaps long term capital gains, then you sell half that position and see if you can rebuy the stock 2 - 5% lower.
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