It is human nature to be indecisive when one is weighing different options. Should I take profit now or wait for the price to possibly move up further? Should I cut my losses or wait for the price do a possible rebound later? These are questions prevalent among investors and traders alike.
A slack off in profit margin after consistent increment year on year, a dividend cut or signals given by the creditors that a company may not maintain its dividend payout are signs of deteriorating fundamentals. A fundamentalist's text book would tell me to sell on news that would negatively impact the fundamentals of the company.
I don't completely agree with this.
The securities market as I have realized is very sensitive in reflecting information about individual stocks. Any official financial reports out for a stock will be incorporated immediately into the prices of the stock without delay(theoretically speaking). Which means if one sell on bad fundamental news, then one may be selling at a price that has the negativity already factored into it.
Is the news that the price is being factored in, factored into the price? This kind of question makes for a trading dilemma, best to be avoided.
I personally prefer to plan my exit strategy on personal profit thresholds and charts. Here are a few pointers that I follow:
1) Do not neglect your stock portfolio even if it is doing well. We are living in the age of volatility, anything can happen.
2) Remove all bias- Holding on to stocks on the basis of hope alone is not a well thought out strategy
3) Put stop loss all the time. Be it on an uptrend support or on a break down on the moving averages/support. The stop-loss order prevents your emotions from taking over.
4) Come to a reconciliation with yourself on profit contentment. Judge your exit strategy on the profit that you will be contented with and not the other way round.
It is impossible to consistently sell the highs and buy the lows, but having a well thought out strategy can reduce our own indecisiveness.