It has been an interesting week. Or a painful week, if you trade without stops or allowed the rising market to lull you into a false sense of security. As Peter Lynch once said: “A sure cure for taking a stock for granted is a drop in price.”
One of the themes I regularly try to instil through this column is risk management. It is the most important part in trading (and probably investing). It is easy to get swept away when the tide goes out. The most regular question I’m asked is “Should I sell [insert stock]?" Even if I was a financial adviser, and legally allowed to give advice, it would still be impossible for me to answer this question. I would have no idea of your entry price, your position size, your target price, your risk tolerance, your expected account returns – all of which are required in order to evaluate a trade.n
It's also worth noting that a good trade for me may not be a good trade for you – and vice versa. Some people are comfortable taking on high risk on a regular basis in search of outsized profits. That is not a risk I am comfortable with. Therefore, it is a question for you and for nobody else. But if you’re asking someone else if you should sell, then maybe what you are really doing is seeking external validation – confirmation bias might mean you are looking for reasons to keep holding, rather than sell. If you are no longer thinking rationally how can it be expected that you would make the optimal choice?