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Ready, Set, Greed!

The Detriment of Emotions

Too often our detrimental emotions get the best of us, and have serious and direct impacts upon our trading strategies. This feature takes a look at how the investors just wanting a little more often wind up getting a lot less.

For example, holding a stock that makes you lose sleep at night can often cause you to make irrational trading decisions. Trying to get one big score may make you pass on taking a respectable gain when it is available to you.

By taking the emotion out of investing, your odds of profiting are far greater, while your chances of making impulse or irrational decisions are significantly reduced.

An Interesting Thing

There is an interesting thing about greed, and you may have seen it yourself a few times. Greed has no top. Greed has no point of satisfaction. That’s why there are horror stories about investors sitting on 1000% gains, only to continue to hold on as profit takers begin sending the price back to earth.

However, if that same investor had been asked what type of gains he or she would like to see from the stock BEFORE they actually invested, they would almost certainly come up with a number far less than 1000%. This leads us into our next point, and why it is so important.

Aim Before You Shoot

When you first buy a stock, set realistic and specific targets of when you will sell. Whether it is after an increase of 40% or 200%, you should know them and stick to them.

It is OK to set a target sell point at 40%, then increase this if the stock starts rocketing toward 100% gains. But don’t use the stock’s move as an excuse to throw your original targets away and hold out for 200% and 300% profits.

In fact, review our feature Cashing Out for concepts on selling a portion of your holdings after the stock has made a good move, which locks in your profits, but still lets some of the money ride.

Adjust Your Aim

Having said that, make sure to factor new press releases, financial statements, and market conditions into your target sell prices. It is OK to adjust them higher if the market suddenly gets hot, as long as you are also willing to set them lower if the markets begin to run into a downdraft.

For example, a strong earnings report may mean that you would be willing to sell at a level 20% higher than you had originally believed would make you confident with your trade, rather than thinking ‘now I can really rake it in,’ or ‘I could probably get…’

In other words, the bottom line must always be to focus on achieving gains that you are happy with, and that are in line with your original expectations for the shares. Act on expectations, not hopes.

Sure-Fire Solutions and Tips

You may benefit from using stop loss orders, although these have rarely proved effective for penny stocks with low trading volume. A stop loss simply says to keep the shares if they continue to climb, but sell if they sink to your strike price. This method can enable a trader to limit their risks, but still enable them to capitalize on any upward price movement.

Remember that it is better to sell too soon than too late. If a stock continues to climb, you should remember that profit takers can move in any time to lock in their gains, and if they sell before you do you’ll be looking at lower share prices while they are off counting their profits. Every dollar that a share climbs convinces more and more traders to start taking their profits. You need to be among the first.

Once you’ve sold, don’t be upset if the price continues to climb. When the shares are at a profit level you are happy with, take the gains and don’t look back. This type of regret is nothing when compared to the type that comes from wishing you had sold before the price plummeted. There will always be a million what-ifs in the market, but it’s all part of the game.

Be sure to review our feature, Cashing Out, which is closely related to this report, and delves into some of the concepts presented in Ready, Set, Greed in more detail.

by Peter Leeds

Website: http://www.PeterLeeds.com

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