Always sell into strength, buy on weakness.

 

The principle of selling into strength and buying on weakness is an important one.  This principle will help you to remain in control of your emotions.  Emotions and investing do not mix, remember that investing is a business and not a gamble.  Investors must follow the rules that they make for each investment or trade.  We must maintain discipline.  This will help us to maximize profits and minimize losses on our trades and investments. 

If there is a trader or investor who can pick the absolute top and bottom in stocks consistently they are keeping their system to themselves.  As long as there is no such system for accurately picking tops and bottoms in stocks we have to come up with price targets that are general.  Before making a buy or a sell you should have an exit strategy and a strategy that will allow you to take profits no matter how well the stock ends up doing for you.

This is not to say that you should not be flexible.  Situations and the market can change drastically in a matter of minutes. When something changes during a trade or investment you may have to change the rules that you set out with when you entered a trade/investment. If you do change the rules of a trade/investment make sure that there is a strong justification for doing so.  A good way to determine this is to explain the reason you are changing the rules to an outside party.  If the person you explain the rule change to does not understand or sign off on the rule change and has a bunch of extra questions, you are most likely making a poor judgment with your rule change.

Unless you are sure that the next few days will lead to an absolute massacre and you know for sure that you must sell into weakness don't sell on a day that your stock goes down.  Normally the market over reacts to bad news and the price gets driven down below where it belongs.  Usually stocks will float back up a bit even if they take a hit on a certain day, this hold especially true for big daily losses.  Wait for a day when the stock is going back up if you decide that it is time to sell it.

If a stock goes up and gets higher then the price target you set as a goal do yourself a favor and take profits.  Keep in mind that the market can jag downward sharply at any time.  If you hit your well thought out price target, congratulations!  Never miss an opportunity to get a big win by selling into strength and hitting your price target.

The markets can be frustrating and make you feel hopeless at times.  They can also be so good that they lead to over confidence. When you feel like the market just won't go up ever again or conversely it will go up forever, feel free to look at the chart of any stock or index.  You will see that nothing ever goes up or down in a straight line.  Never has, never will.