In a world obsessed with picking winners, the dirty truth is many investors under-perform because they don't know what to do with gains once they have them. The temptation to sell too fast is a problem but even worse is the tendency to stick around too long after a stock's run to the upside has ended. Bad stock pickers can muddle along for years, but the true believers get carried out in a box.
Greg Troccoli, co-founder of ChartLabPro.com has three tips for folks looking to hold on to their profits by keeping a grip on their emotions. In honor of those who have been buying the Dip on what was once the largest company by market cap in the world since it hit all time highs $250 ago, we'll call these tips "How to Avoid Getting Apple'd" (name subject to change given Apple's (AAPL) 10% run over the last three weeks).
1) Keep a trailing stop on your winners
A trailing stop is just what it sounds like: If your stock drops below a certain level you automatically sell, which is to say you "stop" owning it. If you watch your portfolio closely you don't need to enter a physical order, but keeping a firm level in mind at which you'd sell an entire position is a key discipline.
2) Take partial gains
"When I reach a certain level of above 10 or 20%, I will take 50% off the books," says Troccoli. Doing so gives him a little more patience with the balance of his position. He compares it to putting a few chips in your pocket when you get lucky in Vegas; people playing with House money are less likely to panic than those who let a profit turn into a beating.
3) Don't call tops or bottoms
"Wait until it rolls over a little bit," says Troccoli. Trading isn't a game of capturing every penny of a move. Taking profits on the way up and in stages rather than in one giant "top" call helps active traders capture a move without sitting on the sidelines watching a stock they once owned blast-off without them.
Ultimately it's up to each trader to understand their own emotions and protect themselves against making costly decisions. Trading is a game of grinding and building good practices, not making off the cuff decisions without discipline. Following Troccoli's strategies or, better still, developing your own can often make the difference between booking a big gain or "getting Apple'd" by staying at the table too long.