When to exit as a swing and position trader?
Hi Marty, new here. Started reading some of the past reports and love them. I have seen in some of your answers that you are more of a long term holder but some stocks "force" you out? What makes you decide to fully sell a longer term position? is it a break, or more than a break, below the 50sma? Do you scale out vs. moving averages?
This has always been my biggest struggle that led to me giving back lots of my gain.
Regards,
Mo
Mo,
The buying of a stock is much easier than selling. I believe we must have a realistic expectation of a stock before we buy it. For example, we would not buy AAPL right now and expect a 10-bagger as that is unrealistic. We also need to know if we are buying a stock to swing trade or for longer term.
When I buy a stock just to swing trade I am expecting a 10% gain, and then exit the trade. If the stock keeps going higher after I sell it, that just confirms my decision to buy. I do not regret taking a profit at 10% and watch the stock rise another 20% because I achieved the target goal.
Let's use the AMD trades as an example. Many traders were waiting for it to make a new high at $100. A swing trader will enter there and exit with 10% at $110. We don't care if it goes to $120 as we achieved our target goal. There are never any regrets with a 10% target goal victory on a swing trade.
A long-term investor will just hold it through the ups and downs for the next few years. We must know our style and expectations before entering a trade though. A long term investor cannot lament the fact they held the stock at $120 and did not sell, and now the stock is back down to $105.00. They are looking for much larger gains and will sit through pullbacks.
A few rules I have as a long-term investor: 1. we can never allow a win turn into a loss. 2. we always sell at a 5% loss as the stock is telling us we bought wrong. 3. I usually sell when a stock I own closes out a week below its 50sma on above average volume.
I hope this answers your question. Are you a swing trader or a long term investor?
Have a blessed day!
Thanks a lot Marty. I am mostly a long term investor but i have a dedicated portion of my account that i use to swing trade.
Regarding the last point you raised (3). This is exactly how i always planned to exit in case of a major market correction, like back in Feb-March. The main problem with this is, what if the heavy sell off starts on Monday and the stock already breaks the 50. Would you consider waiting until EOD Friday no matter what happens? because it might end up selling further to the 200 and past.
This is really where i am trying to play with my rules to have something i am comfortable with. In the end, it is more of an art that experienced investors like yourself will have.