This is one of the few topics that is not covered regularly on blogs and social media. Especially in recent years, people are accustomed to the idea of HODL or hold on to our dear live model where investors will hold onto risky and volatile assets regardless of price fluctuations. The reason behind their actions is not a mystery, this is because their investment amounts are fairly small due to over-diversification or speculation. Caused by assets that have multiplied in value over a short period of time during the period of massive money printing over the world, many investors can no longer maintain their objectivity in the markets. As such, today I would like to bring you guys to attention with regards to selling during a rally while maintaining objectivity for the long run.

Differentiating accumulation and short term trades

Sometimes when we accumulate stocks, there will be an imaginary price range where we would be comfortable accumulating more of that particular stock if the price goes lower and that is referred to as our high confidence price”range”. On the other hand, when the price dips below a certain price point, we will start to feel greater self-doubt and therefore have lower price confidence. In such cases, we might continue to buy more if we are still confident about the company’s future however as far as capital allocation is concerned, we should try and shorten the commitment for those tranches of capital. The profits made from those short-term trades in the lower confidence range will help offset the higher entry price of previous tranches.

Using indicators to sell first and buy back later

When stocks break critical support levels, there are chances for short-term volatility play. For example, if a counter has gone below the high confidence price range, then your subsequent entries might be used for short-term plays to maximize the opportunity cost of the additional capital allocated for this counter. The profits gained from contra or intra-week trades can help to offset the overall capital vested in that counter.

Potentiality of reaching target based on market conditions and sentiments

As investors, we will never know what is the maximum share price achievable by a counter. Therefore, based on historical performance, we can estimate the odds of an extended rally or simply hitting our target price for an exit. Instead of guessing how high the price would climb, investors should stay objective and set their exit price based on historical price movements. Alternatively, we can also sell in tranches based on the confidence level set based on the same basis as the formula for dollar-cost averaging.

Closing Thoughts

The last thing to do is to only sell when the price hits a ridiculous exit price. While it might happen once every few years, your misses will cost you more losses than your gains over time. That is why we have to strategize our entries and exits determined by objective markers and indicators. As for capital deployment, we must also exercise restrain and separate capital meant for the long term and short term. These measures will help ensure more consistent returns over time.