Should I buy, sell or hold the Stocks?
When you decide to trade stocks, you should be confident in your strategy and know when to buy sell or hold the stocks.
Many comments in YouTube videos ask, “Can I sell stock X now as it has given a reversal?” or “How long should I hold stock Y?” So, how do you know when to exit?
Only a few factors need to be considered. If you understand these basics, you don’t have to keep popping in questions on social media.
Investment
The first question you should ask yourself is, “What is the type of holding?” If you are into investments, then you should inquire whether it’s a SIP or a lump sum investment.
For the entry, you should assess the financial health of the company, industry, and market trends. Generally, you should leave the investment and not look back for a minimum of 1 year.
However, if there are any market changes, news from the company, or financial needs, you can exit whenever necessary. Since we are currently focusing on trading, we will delve into investments in detail in later posts.
Trading
When it comes to trading, you don’t have to fuss much. All you need to do is have a solid trading plan, a strategy you are confident in, and emotional control.
Many questions on various YouTube channels ask for tips from the experts. Questions like, “When should I buy the stock?” “Should I wait?” “Can I sell the stock now?” “I am at a loss now, what should I do?” “How long should I hold?”
All these questions stem from a lack of confidence in your strategy. Confidence comes from understanding and backtesting the strategy.
Each strategy has different entry and exit criteria, with a few other factors such as strategy, news, money management rules, and emotional management rules to be considered.
Buy
First, let’s delve into the strategy itself. For example, we will take my market structure strategy.
According to that strategy, you should enter when there is a long-time consolidation or multiple support or resistance points. Exits are based on the Average True Range (ATR).
Similarly, if you are using a moving average strategy, you will enter when there is a moving average crossover and exit when there is another crossover.
So, the entry is always based on your strategy, and it varies according to indicators, price action, support and resistance, chart patterns, candlestick patterns, etc.
Sell
Exits will also depend on these factors along with the Average True Range (ATR). In my opinion, the best method is to exit according to the ATR method.
I have been using this exit method, and I have not doubted exiting a position later.
The approach involves calculating the ATR of the stock at the same timeframe, having 1 * ATR as the stop-loss value from the entry point (which should also be near areas of value like support and resistance, chart patterns, indicator signals, etc.), and having 1.4+ * ATR for the target.
The target depends on the style of trading and money management too.
For instance, if you are scalping, you may want to set 1.4 as your target, 2 for day trading, and 3-4 for swing and positional trading.
Similarly, you may want to exit according to the trading strategy along with money management.
Your stop-loss price should always align with your money management plan.
For example, if your entry price is 100, the area of value is 99, and the price falls below 99, and your money management rule is not to lose more than 500 per trade, with an ATR of 10; then the exit price would be near 90.
The number of shares you should buy would be around 50, i.e., 500 (loss/trade) / (100-90) (stop loss).
If you buy more than 50 shares, your money management rule may become compromised, leading to emotional decisions and potential losses in trading.
Additionally, you may need to adjust your strategy according to market conditions, cycles, global markets, news, social media, goals, etc.
Hold
When it comes to holding, you can keep a stock as long as your exit criteria are met.
This method is applicable to any type of trading, whether it’s scalping, swing, positional, or day trading.
The only difference lies in the risk-reward ratio for each style of trading.
Therefore, there should be no confusion in deciding whether to hold or sell stocks or futures if you adhere to your entry criteria.
Factors
So, here is the list of the most common factors to consider when you buy, sell or hold the stocks..
When to Buy
- Identify technical analysis signals, such as moving averages, RSI, MACD, and chart patterns.
- Focus on stocks with high volatility for more significant price movements.
- React to short-term news and events like earnings reports, product launches, or economic indicators.
- Look for breakouts and trends, buying in the direction of the trend.
- Consider short-term catalysts like FDA approvals, partnership announcements, or conference presentations.
When to Sell
- Set specific profit targets and sell when reached, adhering to predefined risk-reward ratios.
- Use stop-loss orders to limit potential losses and manage risk.
- Employ technical analysis signals for potential exit points, such as overbought conditions.
- Sell if the stock shows signs of reversal or breaks down below key support levels.
- Consider selling before or after earnings reports due to potential unpredictable and volatile market reactions.
When to Hold
- Continue holding if the stock is in a strong trend without signs of reversal.
- Hold during short-term pullbacks within the context of a larger uptrend.
- Assess the impact of news or events on your trading thesis before deciding to hold.
- Define your trading time frame, whether intraday or swing trading.
- Consider broader market conditions and trends when deciding whether to hold or exit a position.
Conclusion
In conclusion, successful trading involves a dynamic interplay of technical analysis, market awareness, and risk management.
Knowing when to buy, sell, or hold stocks requires a careful consideration of short-term indicators, volatility, and the impact of news events.
Traders should adhere to predefined strategies, set clear profit targets, and use stop-loss orders to mitigate risks.
Adapting to changing market conditions and staying disciplined in the execution of a trading plan are crucial components for achieving success in the dynamic world of short-term trading.
Continuous learning, flexibility, and a keen understanding of both technical and fundamental factors contribute to making informed decisions in the ever-evolving financial markets.
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