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stocks for longer periods of time. It is a skill that all online investors need to learn to preserve their capital. We will discuss more about ego getting in the way elsewhere in this book. |
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Afraid to let profits run. This appears to be a rather common error. It is based on an overly conservative approach to profit taking. We are happy to settle for a little profit rather than take a chance we may lose it. |
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For conservative investors who know their limits of risk, this is not a bad error to make. Especially if they have a preset amount (or percentage) of profit and they reach this goal, it is good discipline to take the profit and be content. This is the idea behind the self-evident dictum that, "You can't make a bad trade when you take a profit." |
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But how good a profit do we want it to be? The problem arises when we begin to scare ourselves after making a relatively small profit. In Las Vegas, this would be called, "playing with scared money." |
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If we see repeatedly that a stock keeps rising after we have sold it, it is a good idea to consider taking the risk to let profits ride, setting our limits at a higher dollar value or percentage. In this way, we can challenge our self-imposed limit based on fear that a little profit is more than enough. |
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Another way to deal with the fear of losing our profit is to sell a percentage of it and let the remainder stay in play. This is a common strategy of the institutional traders, who are trading in such large blocks of stock that they still have plenty riding even when they take some profit. |
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The balance or compromise here is to sell a third or a half once it reaches your prearranged gain and leave the rest for further gain. If the stock does not continue to go up, at least part of your gain has been preserved. |
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We will return to other aspects of fear later. Now let us look at the other face of the yin-yang polarity: greed. |
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