Whilst the vast majority of share investors, educators, analysts and commentators concentrate on entry signals – when to buy stocks – almost to the point of obsession, fewer still are prepared to discuss appropriate exit strategies.
Exit strategies are vitally important to acheive success as an active share market investor. Without an appropriate strategy to exit shares that are either performing poorly, or have reached their zenith and are falling back in price, you are doomed to the mercy of the market and the opportunity cost of being a ‘buy and hold’ investor with little to no chance of ever outperforming the market over the long term.
Many people experienced just such an event during the GFC 2008 bear market. Shares that had been performing remarkably well began to drop sharply in price. The buy and hold investors and those without an exit plan sat and watched helplessly as markets crashed, portfolio values were decimated, and some stocks were wiped off the board.
On the other hand, those with a more professional approach to the markets and who had developed an exit strategy simply took the sell signals as they were generated, parked their money in cash, and waited patiently for the market to re-set itself and allow them to begin buying again.
An exit strategy need not be a complex affair requiring the use of lots of indicators and taking huge amounts of time to put in place. It can be as a simple as a regular check of your portfolio on a regular basis and the application of one or more technical indicators to provide you with a call to action to exit long positions when the need arises.
In the attached video of my recent interview on Peter Switzer’s TV program Switzer News I discuss the use of a couple of simple ways technical indicators can be used to monitor a portfolio and provide strategies to exit trades.