Trailing Stop: Tips and What You Need to Know When Engaging in Stock Market Investing
The first part of stock market investing is easy – and that is buying stocks. But the most important part of trading is knowing when to sell. How do you know when you should sell your stocks? Some people made grave mistakes of selling their stocks too soon when it is about to reap the upside or holding for it too long that it loses its value. The problem lies with an investor’s emotions and greed, as this is what causes them to hold on to a stock for a long time. The key to being successful in investing is to buy stocks with the full intention of selling it to make profit in the future using a strategy called trailing stop. This strategy helps you to have a good exit strategy in your investments.
In stock market investing, you should test the waters by investing in stocks that you think will be doing well in the market. After seeing the performance of these shares in the market for a time, you will see which ones are earning and which ones are losing value. These stocks become more expensive over time as it earns and the ones depreciate over time. Many people make the mistake of buying cheaper stocks because they think that they are getting a bargain, but in reality, these stocks are not performing well and you will end up losing money by investing in them.
A good way to know on when you should sell your stocks is the 25% rule. You should sell your stocks when it is falling 25% on its peak. If you purchase a stock at $50.00 and it doubles its value at RM100.00, you should only sell it when it falls down at RM75.00, which is 25% off its highest value. For stocks that you have invested in which are falling in value, you should sell them when they are also 25% off their original values so you can avoid losing too much money in them.
Remember, with the trailing stop strategy and these other simple trading tips, you can minimize the risk of losing money in stock market investing. All you have to do is follow this simple principle and you will surely reap big rewards in the shares that you are purchasing.