The No. 1 Mistake Investors Make
Wherever I go, folks always ask me: “Is now a good time to buy stocks?”
The obvious follow-up then is: “What should I buy now?”
They aren’t bad questions. But they point to the fact that many folks are overlooking another aspect of successful investing. And it’s killing their wealth.
Knowing when to SELL is just as important as knowing what and when to buy.
This means selling shares for a profit or selling to minimize the losses on a failed trade.
In fact, knowing when to sell is even more important than knowing when to buy.
The difficulty most face is that once you own a stock or ETF, you’re not only financially but also emotionally “invested” in the trade.
When you are emotionally attached to a trade it’s harder to be objective. And this can cloud your judgement on when to exit your position.
That’s why today I will share one of my favorite rules to help you determine when and how to take your money and run.
It all starts with understanding underlying trends.
To find an underlying trend first you need to look up the chart of the stock or ETF you’re interested in. You can pull this up on any free charting software online.
StocksCharts.com is great one.
Whenever a stock is in a healthy uptrend, you should see a series of higher highs and higher lows. I’ve traced this on a recent one-year Nvidia (NASDAQ: NVDA) chart for this example.
The green line traces a series of increasing highs while the red line traces a series of higher lows. By tracing these lines it’ll be a lot easier for you to visualize a stock’s trend and the price range.
So what are we seeing in this chart?
Notice how NVDA shares rode a strong and profitable uptrend for over a year but then sharply broke from that uptrend in early October 2018.
NVDA shares finally fell through established support levels for the first time in almost a year. It was a great early sell signal warning folk this tech darling was losing momentum.
Investors who identified these uptrends and breakdowns of course sold their shares and saved themselves a lot of pain. NVDA shares lost 60% over the following three months.
So to Recap…
Knowing when to sell a stock can be even more important than knowing when to buy one.
But to know when to sell a stock you need to understand its underlying trend.
To identify a stock’s trend simply take the stock’s chart and trace a line along its series of highs and another one along its series of lows.
If those data points are moving higher you have an uptrend. Once you pinpoint the trend, you can track the stock until you see it break down below its previously established support level (the most recent lows you traced).
If your stock breaks through this threshold on the downside it’s a warning to sell.
And sell you should.
Because by doing this you can save yourself a lot of pain and lost gains as markets remain choppy.
Much like those savvy NVDA owners did last October.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch