Exit Strategy When You Buy A Stock
When you buy a boat, buy it with the sale of it in mind.
Take a look at this example:
- Let's say a boat is selling for $40 per share during a Low Tide phase and your research shows it might be a good time to buy.
- Before you buy, you set a goal that you'd like to make a 10% return so you will return that boat to the dock at $44. How likely is it that the boat you are sailing can reach $44? Has it reached $44 before? How many times has it reached $44? In this stock trading example, the $44 is way more important than the $40 because the stock HAS to get to $44 to make this trade work.
- How long are you willing to wait to hit $44? You were hoping to sail this boat less than a month, but, after you set sail, you start looking at your charts and you see it's been a while since this boat sold for $44. Furthermore, based on deteriorating sea conditions, you think it might take a while to get back to $44 and even further research shows the boat now has a better chance of hitting $36 before it hits $44! Did you really want to sail it that long? Does the $44 exit price now make the $40 purchase price seems less attractive?
- STOP LOSS. Let's also say you don't want to lose more than 10% of your investment so you will need to return that boat to the dock if it hits $36. It is SOOO HARD to sell at a loss but it is even harder to watch your boat as it sinks to the very bottom of the ocean so stop loss can be important.
In summary, when you buy, try to condition your brain to think as if you are selling the boat at the price you want to sell it for at the time you buy it. Using the above example, $44 and $36 are the key prices you want to be thinking of (write them down) BEFORE you decide to set sail at $40. Hopefully, the Low Tide is about over and the $44 sale is more likely than the $36 sale!
Fair winds and following seas and buy low and sell high!
Trading Tide Levels (at the time of the post):
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