It's always easy to get into a stock position. But it's harder to know when to get out of one and how. As you get more experienced trading, you'll also learn that the larger position you have, the harder it is to get out without moving the market. So just how and when do you close your stock position?
1. Get out of a position when your initial reasons on why you bought or shorted a stock are no longer there.
For example, let's say you got long XYZ stock because it was holding a certain key support level. But suddenly some big sellers showed up and tanked XYZ below that support. This would signal for you to get out since the reason why you bought the stock is gone now.
2. Long Positions -- Sell into Strength (sell on the way up) / Short Positions -- Cover into Weakness (buy on the way down)
We believe in selling into strength (on long positions) and covering on weakness (on short positions). This will ensure that when you exit a position, you will not be exerting added negative pressure on your stock – for example exiting positions by: hitting bids when a stock is already falling (on long positions) or buying offers when a stock is already rising (on short positions). This trading strategy is extremely helpful when exiting large positions as you can exit in small pieces over a longer timeframe as compared to all at once.
3. Sell partial when you aren't sure what to do.
When you are green in a trade and aren't sure what to do -- whether to hold, cover, or to sell -- we recommend closing out a partial of your position to lock in gains. Remember it doesn't hurt to ring the register.
- Hubert Tsai