Securing profits is always something I’ve questioned myself on. Picking the proper timing, and/or the proper stocks to pull gains from. Generally, I start thinking about it once I hit a ~20% gain on a stock. Selling just to secure gains is the only reason I’d sell. I’d reinvest that money into another stock or investment. Just wondering what others do, especially with those long-hold stocks.
Appreciate everyone’s feedback, and sharing some knowledge. Some really good points made. Seems like to each their own when it comes down to it. Securing the gains is my dilemma; not dissolving all my shares in the stock. Having a rule for yourself takes the guesswork out of when to sell. Obviously we cannot predict the market, but holding for the sake of holding seems counterproductive to the goal of investing. That is making money, and using that money made.
2% gain-and-out trading plan on the stock market - Personal Finance & Money Stack Exchange
Do you have a sell percentage (gain or loss) that you stick to, and, if so, what is it?
When to take your profit from a stock.
When do you take profits on your positions?
Why is it important to calculate stock profit?
How Are You Taxed on Profit from a Stock?
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Common fallacy ...
Every new trader "invents" this idea.
You'll simply get closed out as stocks move down.
So,
I [buy a stock] and each time the stock goes up (even if only 1 moves each month) 2% I sell that stock ...
It's completely commonplace that you buy a stock, and from that day forward it goes only down, whatsoever.
In your example just one of your $500 bets could turn in to, say, $120 or $150, making you lose 300 or 400 bucks.
Or you could "merely" lose $200.
That enormous loss on just one of your "plans", would completely wipe out the pathetic gains of a few dollars you are making from all your other "plans".
I hope it makes sense.
One loss utterly wipes out literally hundreds of other "wins":
To try to explain it another way:
you are simply wildly underestimating how often and much you lose when you try this.
You'll find this question will probably just get closed because every single new trader "invents" this idea. Every. Single. Time.
In the history of the universe, Every Single Person who has thought about "trading! stocks!" has "invented" this idea.
You now know clearly why it doesn't work: you are simply wildly underestimating how often and much you lose when you try this.
These days you can very easily "paper trade" stocks. I urge you to try it.
I will give you 10 thousand real bucks if you can show it worked.
Enjoy paper trading!
BTW there's a similar "everyone invents this..." with gambling. Every new gambler, say roulette player, invents the Martingale "method". (You can google it up.) It too (obviously, or everyone on Earth would be a billionaire) has a Fatal Flaw.
Unrelated question. Stock picking:
Regarding unrelated "Scenario 1" also mentioned in the question...
That's just called "stock picking". (You better be good at picking the 20.)
The more you have in the basket, the safer it is. The less you have in the basket, the more risky it is in both directions. In fact ........... the very best way to invest is nothing more than:
That's the whole story.
There's nothing else to "investing".
If you think you can pick a basket of "20" stocks, where you believe Your Basket will do better than an ordinary S&P index fund: that's just called "stock picking".
You will not be able to do better than an ordinary S&P index fund.
10,000s of stock pickers try this every year ........... and they all spectacularly fail.
How to lose 50 billion in a few months:
Here's a joker who lost fifty billion dollars by picking a basket of 20 or so stocks - literally exactly as in the question.
(Hilariously: afterwards, the guy in question, the only thing he had to say for himself was: "Yeah. It's hard to beat the S&P." OK, no shit Sherlock. Nice call. Good way to lose 50 billion of other people's money.)
Some "beat the S&P" 1 year out of 10 or 20, which is just random.
Making 1% a day is quite possible for a few days or even a few weeks if you're on a have a hot streak, and you're trading a small amount of money. But doing that consistently is impossible. No one makes 250% a year (trading a fixed amount) or 1,100% if you're compounding the 1% gains as well).
Here's a simple example to demonstrate the problem with your strategy. Suppose you invest $500 in 3 stocks.
- Stock A makes 50% and that's + $250
- Stock B makes 24% and that's + $120
- Stock C loses 50% and that's - $250
Your total gain is $120 so your yield is 8% ($120/$1500). Success! Your strategy works!!!
But wait, you said that you were going to sell your stocks when they rose 2%. Oops, because of that, you didn't make $250 on Stock A and you didn't make $120 on stock B. In fact, you only made $10 on each so you have a net loss of $230 or -15.33%.
The fallacy in your strategy is your assumption that you "pick 10 good stocks and 10 bad ... (and) the stocks made and lost the same value." Sorry, but it doesn't happen that way. Stocks will have varying amounts of gain and loss.
One of the most important tenets for a trader is “Cut Your Losses and Let Your Profits Run”. You've reversed that by cutting your profits and assuming that your losses won't be more than a small amount. Some will lose more than a modest amount.
Successful stock trading requires that you have an edge (a strategy that works) as well as disciplined risk management. Your strategy has neither.
As an aside, in March, the stock market dropped about 35%. How do you think that your strategy would have worked then?