To Take Profit Or Not? That's The Question

Investors need to have an exit strategy even before they buy a stock. Sticking to that plan will reduce uncertainties and anxiety.

- Simon Brown

As global and local markets continue to rally after the collapse of late March and early April, I am being flooded with questions from people who bought shares during the collapse and now want to know if they should be selling.

The point I always make is that an investor or trader needs to have a plan for selling a position when they initially enter that position. Sure, the plan is to make a profit, but it needs more detail because what is a profit? Is it 1% or 100% or somewhere in-between?

Equally important is that while we focus on the profit side of the equation, we also need to be very cognisant of the potential for a loss and, as such, our exit plan needs to have both a profit and a loss side.

For traders, the loss side of the exit plan is easy. You have a stop-loss that is a pre-determined level at which you exit the trade, no questions asked. You’re losing money and you need to stop the bleeding and protect capital.