Selling A Stock Too Early

by Darren

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A frequent lament from stock investors is that they sold out too early. With hindsight being 20/20, it’s easy to sit back and analyze your trade and say that you ended up prematurely exiting the trade. But if it happens too often, it can be cause for concern. One of the keys to Warren Buffett’s great investing record is he always believed in “letting his winner’s run.”

You can avoid selling out too early by using a trailing stop loss

One not very complicated way to make sure you don’t exit too early is to use a trailing stop loss. This way you can protect your gains, and make sure you get the heck out of there in the case of a severe reversal.

So, your advantages are two fold:

1) You protect your capital in the event of a reversal
2) You end up selling somewhere around the peak.

This second point won’t always be the case, but it may end up happening. If you set your stop at 8-10% and the stock turns downwards that much, you’re probably better off being back in cash anyways.

What other ways can you think of to avoid selling a stock too early?

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