I don’t know really what to do, you know, I’m up on the trade but should I sell or should I hang on to? And I have no idea, but like I said, I come across this every day but it doesn’t need to be complicated. The complicating thing that creeps in is right here, what does sell mean? This may seem like very straightforward, but I speak from experience with the emails that I get and the questions people don’t truly understand what sell means. A lot of people go right here, they think sell means everything, so that means if I have 100 shares that means when I sell I have to sell 100 shares. If you’re options trader, you know, I have five contracts, so when I sell that means five contracts.
A lot of people think sell means everything. Other people think that it means that the trade is over. Meaning when you say sell, that implies that the trade is over, not true, but with that thought process, it can create the over complication that just isn’t true.
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And then finally a lot of people are just, well it’s gotta be all or nothing. Either you’re in the trade, you go all in, and then because you go all in then you gotta get all out, so it’s just all or nothing. But none of this is true, this is not what sell means.
Very commonplace but just not true. Because we have a beautiful word out there in the world of trading known as partial. Meaning you can do a partial sell. Now what does this mean for you?
How does this help alleviate the situation of do I hold my shares? Do I hold my contracts? Or should I sell them?
Well like I said, I experience this every day, so let’s take a look at this right here, and let’s just say this is the current price. So current price is at some level. And you’re sitting there saying well, should I sell or should I hold? Well why not do this? Why not sell half?
So if you have, let’s say, 100 shares, sell 50 of them right at this level. If you have 1,000 shares, sell 500 right at this level. Now why would you do that, what are you accomplishing? Well in it’s very simplest form, this is risk management, you are actually managing risk.
Maybe you’ve never looked at it that way but it’s very, very simple way to not only provide a solution to the common problem of should I hold or should I sell, but it’s also just good money management and good risk management. So how does this help? Well let’s just take a look at two things, let’s take a look at kind of two camps. So the price, let’s say it heads up, or the price may head down. So let’s look at it from the people that are over here saying all or nothing, all or nothing, alright well, the price goes up, you know, they’re feeling pretty good, right?
Okay that’s great, that’s great, the price went up, good thing I didn’t sell down here. But what happens if it goes down? How are these people feeling over here? They’re gonna be suffering from this, “I should have” regret, should have what?
Well more than likely they’re gonna be saying I should have sold, I just should have sold, and they’re gonna be angry at themselves, they’re just gonna be very, very upset, I should have sold when the price, when I had a chance up there. Well what about the people that are gonna stick with the partial sell? What happens if they sold half up here? And then the price comes back down?
You know, they’re gonna still have some pain, so there’s no doubt about that, but their pain is gonna be relieved. So pain relieved, meaning yeah, they’re still technically losing some money on what they could have had up there, but at least they sold half, so that is certainly gonna relieve the pain that these people are certainly suffering, there is no regret over here because, hey, you know what, at least you sold a half from your position up here. Now what about this side of things for the disciplined people, well you know what? If it goes up here, these people are going to be very excited, meaning if you did a partial sell, hey you know what, not only, sure you kind of left some on the table because you sold some at a lower price, but at least you can still participate. And this is, you know, a very simple but very important word in terms of the market, you want to make sure that you can participate in upwards movements. But you wanna manage that downside risk, you wanna manage, well what happens if this really is the top, what happens if this price is done going up?
That’s why selling half, it really accomplishes so many things, it covers the bases in case the price goes back down and you can say hey look, I sold the top, I didn’t sell everything but at least I took some profits off the top. But if you’re wrong and it’s not the top, and here’s an FYI, you’re never gonna know whether or not it’s truly the top, but if you’re wrong and it’s not the top it still goes up but hey look, I can still participate. Whereas these people, let’s say they decide, you know what? The people that just think everything, all or nothing, they’re like you know what? I don’t know, I’m just gonna sell everything right here. And then the move happens to go up here, talk about just, we’ll call it the hair pulling out, I mean the ultimate frustration, I know I’ve been there before.
Before I kind of learned this basic concept where, I think, I’m just gonna get it all out, I want out, the trade’s over, I’m gonna sell at the current price. And then all of a sudden you see this happen, it keeps on going and going and going. And had you just only sold half, you would still have half, and what, you would be able to participate still. So selling half, that’s what I always tell people in emails. You know, I have no idea if your stock, I have no idea if your option is gonna go up in price, but don’t worry, I face this problem every day and whenever I am at the situation, am at this crossroads, I just sell half, it doesn’t have to be half, maybe you wanna do a third, maybe you wanna do a fourth.
Maybe you wanna do three fourths, I don’t know, the point is by taking some profits off the table, when you meet the crossroads of, I don’t know what I should do, do I need to hold or do I need to sell? You don’t need to sell, you can sell but you don’t need to sell everything, it doesn’t mean the trade’s over, it’s not an all or nothing type of deal. Partial, keep that in mind, sell partial of your shares or partial of your contracts. Lock in some management so you can protect your downside, but also, don’t find yourself pulling out your hair, leave yourself an opportunity to still participate if the price goes up, so, keep that in mind as you’re going forward, when you approach those situations, they more than likely probably happen every day, right? I mean, I’m always facing that, should I hold or should I sell, should I hold or should I sell?