Sell stocks when your target is reached
This is the primary rule for traders and an important rule for investors. If you are a trader then the focus must always be on churning your capital. A smart trader respects the stop losses and the profit targets as that discipline is the key to sustainable trading. Once the target is reached, then there should not be a rethink. Also, once the stock is sold, avoid looking at the notional gains you missed. While trading is understandable, what about investments, especially when you have taken a long term view on the stock? Check if the triggers still exist and whether there is a justification to revisit the targets. Alternatively, you can look to make the best of the rally with rolling stop profits.
When your financial plan goes out of sync
This is a decision you have to take irrespective of whether the stock is good, bad or ugly. If your original allocation to equity, debt and gold is 60:30:10 then you need to stick to this mix with a small leeway. If the share of equity in the mix has gone up to 65% it is a risk that you can afford to take. However, if the equity rally has taken your equity share to 75%, then it is time to unwind equities. This has to happen irrespective of valuations since the debt equity mix must be respected in this case.
Stay light over a long weekend
What do you do if you have long trading positions in stocks or indices over the weekend? You often get situations where you have long trading positions over a weekend with multiple trading holidays. While you don’t need to overly worry about investment positions, long trading positions must be kept at the bare minimum ahead of a long weekends. That is more because we have seen bouts of volatility in the last few months in the global macros. It had a spill over impact on the Indian markets too. Trade war, Chinese Yuan volatility and oil price movements are some of the factors. The lighter you are on long positions (especially leveraged and F&O positions), the better it would be.
Sell in May and come back in July
Does this really work as a strategy? While there is no concrete evidence for the same, it has been intuitively observed that markets tend to give away value during May in most years. The reasons are not far to seek. There is the after effect of the budget and at times the budget euphoria tends to peter out by May. Also, May is when the first signals of monsoon are received and since we have had a series of drought warnings in the last few years, the impact has been quite negative on stocks. For traders in the stock market, it may be a good idea to sell in May and re-enter when there is greater clarity on the Monsoons. Of course, we have to leave out the election years as they can be exceptions.
Sell when gold prices are rising
This is an interesting aspect of equities in that they tend to move inversely with gold prices. Gold has long been seen as a defence against volatility and uncertainty in the global macroeconomic situation. Normally, a sharp appreciation in gold prices is a signal that investor interest is shifting away from growth assets like equity and into safe assets like gold. It is time to sell.
The strange part of trading and investing is that you only make when you sell. Timing your selling right can go a long way in this case.