How to Sell Stock
When Emotions Start to Kick In
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Anticipating the emotions that surface around selling stock and preparing yourself for how to sell stock quickly and easily makes trading a whole lot more fun and enjoyable and keeps your portfolio moving along in the right direction.
Here you'll find the reasons why selling stock can be difficult and tips for how to make selling easier.
Why Is It so Hard to Do?
In general, there are two main issues around why
so hard to do. One reason is an emotional sticking point and the other has a pretty simple fix. They are as follows:
- Negative emotions about the actual or possible loss of money for "being wrong" about a stock.
- Not having a real plan for when and how to sell a stock position.
Think about how one or both of them may have impacted you in the past, and see if any of the following emotional responses followed.
No one really wants to be wrong about a stock or lose money, but many traders do lose money, and sometimes it's a lot of money, especially when they’re first starting to trade.
Some of the common emotional responses to being wrong about a stock begins with faulty beliefs about stocks and the markets. Throw together some denial, a bit of avoidance, a fast moving market and you have a recipe for disaster. Here are some examples of what you may have thought at one time or another:
"It's gonna go back up." - If you’ve ever watched a stock go down and thought, “It’s gonna go back up,” then I am speaking to you. The tough part is that you did whatever it is that you do to choose a stock and you had a viable reason for buying it. And, the stock might go back up, but you want to draw a line in the sand of how far you’re willing to let a price drop before you’ll immediately take action even if your original reasoning for buying was sound.
"It's a long-term investment." - Another one of the things I hear people say when a stock price goes down is “it’s a long-term investment.” Yes, a long-term investment that’s currently losing money. It’s almost as if the term “it’s an investment” has become an excuse for stock nonperformance. It's not!
Trying to keep a false hope alive doesn't work and unfortunately, success doesn’t come from hoping. Success is the result of taking control and action especially around the topic of how to sell stock.
"I don't want to leave money on the table." - Perhaps you're in a stock position that has increased and you're trying to decide whether it's time to sell. As you face selling, anxiety begins to creep in around the possibility that the stock might make a strong move after it's sold and you may have left money on the table.
When facing these kind of emotions, the brain asks two questions when thinking about when and how to sell stock - will this cause pain or pleasure and what must I do to feel pleasure instead of pain? Typically, the brain is trying to turn the pain of deciding whether to sell a stock into pleasure by putting it off until sometime in the distant future when things will surely be rosier. The problem is that kind of thinking becomes a limitation.
The emotional resistance to taking the sell action is real, and I completely understand that. However, if you want to be a better trader, you have to understand the emotional roadblocks and shift the beliefs about selling stocks. Once you do and get into the habit of selling, you’ll realize how much more successful you’ll be and how much better you’ll feel because you’re taking action to solve a troublesome problem.
Shifting the Thinking
Instead of feeling like you’re in a powerless position when it comes to knowing how to sell stock easily, what you’re going to do is learn how to control the emotions by shifting your ideas around selling stock. The first thing to get cozy with is to anticipate some losses. The key is to take them with a grain of salt and know that you did everything you were supposed to do and the stock still went down.
Here's a situation I'd like you to think about: How would you feel if I told you that you were going to lose $500 right after purchasing a stock? Does the thought of losing $500 feel sort of sickening? What if I told you after that loss you were going to gain $2,500 in a different stock position? Could you get to a point that you were almost happy to lose $500 to gain $2,500? Ok, not happy, but that it was acceptable?
Another way to think about it is if you owned a rental property. For the most part, the investment property returns a positive cash flow, but one month the refrigerator at the property breaks down and you need a new one. There's an unexpected expense that you have to absorb, but then the next month it returns to a positive income.
That's the place you want to get to and you do it by anticipating calculated losses and taking them comfortably and easily knowing that your focus is on the stocks that will do well. Really well.
It might sound a little nutty, but the next time you are facing a stock with a loss try on the emotion of happiness about it. Think to yourself:
"The loss is here, (hello loss!!), I'm taking it and now I can focus on a different stock that's another strong candidate which I now have money for since I just sold a loser."
Keep in mind, position sizing has to be part of the equation. You can't trade your whole portfolio on one stock and be happy about it. If you’re applying a good
position sizing strategy,
it’s ok to have a few losses.
Honestly, denying that there will be any losses is a mistake that only makes the negative emotions worse.
Set a Pain Threshold
When you get to the point in your trading when you realize you must and can control losses, instead of denying and ignoring the negative emotions around how to sell stock, what you'll want to do is set a "pain" or sell threshold for every trade. The threshold is the amount of money you are comfortably willing to lose in any one stock position and when the stock price hits that threshold you sell. No, "if," "ands" or "buts."
On the flip side, if a stock has a nice gain, set the sell threshold based on your sell criteria for a gainer. It may sound hard to believe, but many people experience emotional pain while trying to decide when to sell after a gain.
How to Sell Stocks after the Stock Market Fairy Has Smiled Upon You
discusses how to plan for gains.
What you're doing here is taking control by predetermining the possible loss on all stock positions as well as the total loss to your portfolio.
As you continue reading about trading and the very important area of how to sell stock, you'll repeatedly hear the top traders talk about knowing what the sell price will be before they ever enter a trade. If you don’t know how much you’re willing to lose from a current stock's price then it becomes an open-ended figure with emotion as your guide.
By removing the question of when and how to sell stock, all that's left is action.
Control Emotion by Having a Plan
It's one thing to decide what your pain threshold is and another to click on the sell button. One can still get back to the avoidance and denial mentioned above unless there is an automated plan in place for how to sell stock. This comes in the form of a
of some kind.
With the use of a stop loss, what we’re aiming to do is to take the internalized, negative emotions off your back and put them where they belong – figuratively, on the stock price’s back. If the stock doesn’t perform the way you wanted it to, it’s automatically removed from your portfolio by the stop loss.
If you haven’t identified specific loss parameters visit the
Risk Management Position Sizing Primer
and then add the loss parameter's to your
stock trading plan.
Creating rules that make the stock selling as easy as possible will prevent you from allowing your emotions to get involved and over thinking the selling process too much.
Don’t Worry, Be Happy
It's unrealistic to believe one can capture the full gain on any stock every time nor know if the stock price won't head downward. The plan is to feel satisfied with capturing a percentage of an upswing not the total move!
The last thing is – don’t beat yourself up or get discouraged if you have a loss. The way to turn the tables on knowing when and how to sell stock is to cheerfully take the small loss, be grateful that it was small and happily look for the next best stock trading choice.
Return to Successfully Selling Stock.
Go to How to Sell Stock after a Gain.
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