The Toughest Decision Is When To Sell

The decision to buy is always easy. No matter what you are trading, stocks, bonds, gold, oil or anything else, the decision to buy is always the easy decision to make.

The decision to sell could not be more difficult.

Think about what you are feeling when you decide to make an investment of any type. You are excited and enthusiastic about what you are doing because you believe that you have made the right decision and you see the potential for a large profit in the trade.

When you make a buying decision either as a trader or as an investor, you generally feel good. Nervous perhaps, but when the decision is made and the trade has been executed, you generally feel good about the trade decision.

The decision to sell on the other hand is very difficult to make in most cases.

There are only two reasons to sell an investment. First, if you have made money and want to cash in on your good fortune, or if the investment is not doing much of anything and is dead money. The second reason to sell is to finally throw in the towel on a bad investment and take your loss. This can be the most difficult decision for amateur and pro traders alike.

If you are selling an investment to take a profit, the conversation you have with yourself revolves around how high will the market go and how much money can I squeeze from this trade? Often I have seen traders hold off on selling a position as the market rises in hope of a huge windfall profit, only to watch as the market head south and all the profit disappears and turns into a loss. This happens because traders are not trading in a disciplined manner, but rather on hope and a gut feelings. Watching as profits turn into losses will often paralyze a trader into no action whatsoever, which is never a good strategy.

When selling a losing position, traders often are holding out hope that the market will somehow magically reverse and allow them to cut the existing losses. Again I have often seen traders paralyzed into complete inaction as they watch a position get worse and worse, hoping that the market will turn and they can get out of a losing position at break-even. In most cases watching a losing position means the loss gets larger and larger.

Remember that as a trader or investor, you will always second-guess yourself when deciding to sell a position regardless of weather it's a winner or a loser. This hesitation, experienced by all traders at some point, is a major cause of trading anxiety. Learn to manage your emotions, take decisive action and execute your trades based on a well thought out strategy in advance. Over the long term, you will be happier, healthier and probably wealthier for doing so.

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