The key to profitable investing: Having an exit strategy in place
In a number of ways, buying shares is the easy part. The hard part is knowing when to sell. But to protect yourself against losses and not banking gains, you need to have an exit strategy in place. And you should make sure you do this as soon as you buy a share. Let's take a closer look at why you should have an exit strategy in place…
A good investment consists of two things: A good entry price and a good exit price, Dr Steve Sjuggerud in Investment U
An easy to implement exit strategy is to use a trailing stop loss
. You could set this at 25% below the buy in price. As the share price rises, the stop trails higher behind it.
For example, if you aim to make 100% and you use a 25% trailing stop loss, you have the potential to make a 75% return. That gives you a reward-to-risk ratio of 3 to 1.
When you invest, you need to think about what your potential reward is and how you can control your risk.
Trailing stops can be a good option
Trailing stop losses aren’t your only option when it comes to exit strategies. There are a number of different variations out there.
The main thing is that you need to have an exit strategy in place when you first buy into a share. You need to know exactly what will make you see that share. And you need to know how much the share has to rise or fall for you to sell it.
If you don’t know these points, then you don’t have an exit strategy. And if you don’t have an exit strategy, then you’re ‘winging it’.
So if you haven’t done this for the shares in your portfolio already, make sure that you have an exit strategy in place for each and every one of them.