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selling a part of your position when it reaches your target and holding part of it for further gains. You may, for example, sell one-half of your position at your target and hold the other half, setting a new target price for those shares. Again, put in a limit order to sell the remaining shares at that new target. This risk management tool satisfies the greedy side to have something of your profit in your hands, limits all-or-nothing liability if the stock moves down, and keeps you in the game for further upside potential. |
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4. Make your efforts tangibletake profits periodically. Shorter-term traders don't have to be told but intermediate- and longer-term investors do. |
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Cash in a portion of your profits periodically. Resist the old line hold-forever mentality that fosters no enjoyment by ever taking any profit. |
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Even if your investments are for a retirement account and you can't get your hands on the money, sell when you've hit your target price and enjoy the feeling of your successful efforts. Retirement accounts are the best for taking profits because you don't have to pay any capital gains taxes when you sell. |
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The market is too volatile to put your money in and fall asleep for 10 years. If you're going to get actively involved in online investing, make it acceptable to take profits without apology. And don't let having to pay taxes (if a nonretirement account) stop you from raking some of it in. This appeases your greedy part and also increases confidence in your trading ability. |
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5. Make sure to have cash for a crash. The fearful side says never be fully invested, always maintain a healthy cash position. No matter what the market does, the cash sits and earns a little interest. The fearful side requires this security and wants your cash position to be even higher than the 5 to 10 percent often recommended in asset allocation models. |
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For intermediate- and long-term investors, having a healthy cash position is the equivalent of the day trader going home ''flat," with no positions held overnight. The psychological security of a larger cash position or a chunk in bonds tends to be underestimated, especially when the equity market is hot. The greedy side wants all of our money working in stocks all of the time. But the fearful side needs to assert and make sure it is covered with adequate risk management. |
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The added benefit here is that the greedy side is just waiting to put that cash to work when the market takes a dive and everything is |
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