Where do you fall on the spectrum between trader and investor? One way to tell the two apart is by how closely you follow the stock market and how rapidly you make investing decisions. Market timers are traders who try to predict when share prices will rise and sell their positions at a profit.
Not all professionals in the finance industry believe in the efficacy of market timing. Since no one can reliably foresee how markets will behave in the long run, seizing opportunities sometimes comes down to sheer luck.
On the other hand, a well-planned and disciplined investment exit strategy is vastly superior to market timing. This is significant because it may help calm investor fears and avert a sell-off. You can limit your losses to a manageable level by first considering the potential for growth and market risks associated with a security or investment type and then setting criteria that represent your comfort level. Without this analysis, you might give in to your emotions and sell at a big loss because you can’t stand to see your investment go downhill daily. To know best, discuss your situation with an expert accountant in Lake Mary, FL.
An exit plan and sticking to a selling price. It can be tempting to “let it ride” and forget about your exit strategy when the share price of a stock you own is rapidly appreciating.
An efficient exit strategy will have two price points built in, one at which to sell for a profit and another at which to sell at a loss. This method can help you stick to your asset allocation plan by limiting the impact of gains or losses on your overall asset allocation percentages. You can modify your portfolio’s exposure to risk by not investing more than you can afford to lose. Your departure strategy can be put into action with the help of specific techniques. That’s the case, for instance:
- Stop-loss is a sell order placed on security when its price falls and is scheduled to be executed after it hits a predetermined price, or “stop price” (sell-stop).
- This trading strategy involves the buyer buying a security at a predetermined price and the seller selling below it. Stop-limit orders can be made good till canceled (GTC) or set to expire at the end of the current market session.
- Using a trailing stop order, you can place a stop order below or above the current market price of a security.