The Fear of Selling Too Soon

The Fear of Selling Too Soon

Fear works against most investors when it is time to take profits. Fear and greed! The fear after taking profits on a trade, greed in that the price may continue higher! How stupid we would look after buying a stock at $10, took profits at $16 and two weeks later it was trading at $24! The first question should be, “looking stupid to whom?” 99.9% of the time nobody other than yourself, knows what trade you have made. The other .01% doesn’t give a hoot. They have their own problems. What it boils down to is not looking stupid to you. Unfortunately, this ego problem induces the majority of investors to continue to hold a position well past the optimal “sell” time.

The inherent attributes candlestick signals provide is a format that indicates when the “probabilities” say it is time to sell. Most investors lose sight of the premise of their investment program. A good investment program indi­cates when it is time to buy and when is time to sell. These are the outstanding features found in candlestick signals.

Profitable investing requires discipline. That discipline involves following the signals/indicators that are the basis for one’s investment program. There is nothing wrong with buying a position when the indicators say to buy. There is nothing wrong with selling a position when the indicators say it’s time to sell.

Will there be occasions when a price continues higher after you close out a position? Definitely! There are two ways to resolve the emotions of that issue. First, when an investor comes to the realization that if they execute their trades based upon a trading program that provides a high percentage of profitable results, they can always look back at a trade that continued higher with solid investor logic. They bought when it was time to buy and they sold when it was rime to sell. That trading discipline will work in favor of the investor over the long run.

There is nothing wrong with taking profits when the probabilities indicate that it is time to take profits. Are there times when the signals are indicating a profit-taking pullback in an uptrend versus a full-scale reversal? Certainly, but being able to identify candlestick signals in the formation of high-profit pat­terns allows an investor to take advantage of anticipated price movements.

The perfect example is the J-hook pattern. After a strong positive move, candlestick signals usually indicate the probability of a sell off.

Will that sell off be 5% or 55%? That is a question that cannot be an­swered when the reversal signals first appear. Why take the chance of holding a position that may give back most of the profits?

The worst-case scenario is a candlestick sell signal indicating it is time to take profits. Four days later the price starts moving back up. If it appears as if a trading pattern is forming, buy the position back. There is nothing wrong with buying it back at a higher price. The point of investing is to put funds in posi­tions that show a high probability of producing profits. That will mean there will be trends that provide opportunities to make “most” of the profits available from that price move. The point of investing is to maximize your profits for your account, not to try to maximize profits on every trade.

Averaging Down

The concept of averaging down should not be in the realm of candlestick analy­sis. Averaging own is performed by investors that do not incorporate a trading strategy. Averaging down is the rationale for holding a position too long in the first place. The swing trader clearly has analytical benefits using candlesticks signals. Once a trade is executed, the negation of the candlestick buy signal should create cause to close the position quickly. Cut your losses short, let your profits run. Utilizing the simple stop loss analysis that candlestick signals offer eliminates the need to consider averaging down.

The long-term investor may have a different perspective. Averaging down might occasionally be applied if the long-term chart has experienced a pullback but not a sell signal. Even then, the analysis needs to involve one important factor, “Is this the best place to be committing funds at this time?” Money should not be allocated to a position for the sake of averaging down just be­cause an existing position is already in place.