Profit Average Selling

One strategy that I learned from an stock trader is to sell partial positions when a stock reaches a near term sell price.  That way if the stock price continues to rise, I will continue to participate in the gains. If the stock price declines, I will have taken some profit at a higher price.  Psychologically, I win (partially) either way.

Previously, one downside of this approach was the trading costs.  The cost of  additional commissions can significantly reduce the amount of gain if the partial positions are small lots.  However, with brokerages offering free trades (by promotion or account criteria or for select ETFs) which enables cost effective partial sales.

Recently, I used this approach for several positions that I owned. As might be expected, some of the stocks continued to rise, allowing me to sell the rest at a higher price.  Some of the stocks were didn't change and I sold the remainder at about the same price.  Some of the stocks declined, allowing me to lock in some profit and  to buy some at a lower price.  Although I have not made a comparison to selling the entire position at one price, I felt that I had made a good selling decision for all three scenarios. 

Since I believe the stock market will continue in a trading channel in the near term, I will continue to use this profit averaging selling strategy in our investment accounts.

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This is not financial or investing advice. Please consult a professional advisor.

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