Survive Economic Turmoil (part 4/5)
Next in our series on 5 Tips to Survive Economic Turmoil comes “Knowing When to Sell.” Stay tuned in the near future as well, since we’ll also be releasing our fifth and final tip, “Be Wary of Averaging Down.”
WHEN TO SELL
Knowing when to sell is one of the most overlooked aspects of investing. I’m a believer that you set up your future profit or loss when you buy (by getting in at a great price). However, I understand that the sell decision can really have a major impact on the results of the trade.
Now remember, we’re dealing in penny stocks. We use Leeds Analysis to uncover companies that we expect to multiply many times over in price. Less experienced traders seem to forget this, as they cash out for 50% and 100% gains, only to see the shares keep on ramping up.
For a 25 cent stock to go to $5.00, and absolutely change your life, it first has to go to 50 cents, then 75 cents, then $1.00, and so on. You can rest assured that there will be investors gladly taking their profits each step of the way, only to miss out on the big score.
The other end of the spectrum involves being greedy, and not taking a good profit when it presents itself. You’re up 100%, but you wait to see if it could go even higher. Then, as the shares drop back to earth, you kick yourself, wondering why you didn’t cash out.
So how do you know when to sell, and when to hang on? How do you know when you should exit a losing position and take losses? Assuming you are in a position to either hold or sell, the right move may become more clear by considering the following:
Trading Activity – Spikes and drop-offs in volume will give you clues as to whether a climbing price is running out of steam, or a trend is reversing, or shares are poised for a big jump.
Technical Trend – Take a look at the penny stock’s Current Trend, Resistance Levels, Support Levels, and if it may be Topping Out. (You can learn more about technical trends in penny stocks by learning Leeds Analysis). Each of these provides you with clues to understand what is happening with the share price, and what to expect going forward.
Original Reasoning – Why did you buy the shares in the first place? Do those reasons still apply? Have the company’s prospects improved or declined? If the penny stock is executing well on their business plan, then it may make more sense to have patience. If many things have changed since you originally got involved, you should revisit the idea of owning the shares.
Consider this – if you just found out about this company today, would you buy into it at these prices? Even better, forget everything you know about the company, and perform Leeds Analysis from square one. Put those hot penny stocks through the Leeds Analysis ringer, looking for both warning signs and opportunity.
By trying this approach, you may really increase your clarity, and make the best decisions on when to take profits from the penny stocks you have bought.
Remember to stay tuned, as we’ll be releasing our fifth and final tip to surviving economic turmoil shortly.