Selling Silver: Do you have an Exit Strategy?
Selling silver is one of the most overlooked aspects of silver investing. When ever you buy silver or silver related investments, you should always have a plan to sell. This plan should take into account the wild ups and downs (volatility) of silver's price. Remember, you really don't make a profit until you sell. The following applies more to silver related securities than it does to silver bullion. But even your silver bullion needs a exit strategy.
Buy Low Sell High
Everyone knows that "buy low and sell high" is the goal. But, here's the age old story... Your friend is really excited about an investment. You feel your friend has done all the research. He wouldn't have recommended it if he didn't, right? You ride on your friend's excitement. Right now, your greed is greater than your fear.
It looks good at first, but then everything goes south. The price drops - a lot. You sell. You lose money. Duh...
Unbreakable Rule: Plan your exit strategy BEFORE you invest. This way you limit your loses, maximize your gains and take your emotions out of it. Technical traders know this very well. But for some reason longer term investors seem to skip over this part of investing. Dr. Alexander Elder's book, "Trading for a Living: Psychology, Trading Tactics, Money Management" makes this unbreakable rule very clear. [By the way, this is a good book.]
Planning Your Exit
By the time you are ready to plan your exit you should have already done these things:
- Decided upon your time frame - short, medium or long term.
- Done your research using that time frame.
Now you must plan your exit keeping that time frame you chose above in mind. "Buy and hold" is not what it used to be. That's a recipe for disaster. Long-term investors can learn from traders in this case.
From Dr. Alexander's book above there are three points of an exit strategy:
- Stopping your loss
- Breaking even
- Protecting your profit
Stopping Your Loss
When you first enter a trade or an investment you must specify the lowest price you will allow it to go before you sell. This limits your risk. If it goes down to the price you specified, you sell. No emotions. No regrets. Just get out. Learn from your experience. Write it down for future reference.
When your trade's or investment's price goes above what you paid for it you have a choice - break even or make a profit. Your exit point may now be the point at which you entered the trade. This is up to you. Over time your experience will help you in these matters. If you exit here, learn from your experience. Write it down for future reference.
Protecting Your Profit.
Once your trade/investment moves significantly higher, you have the luxury of determining the minimum profit you will take. This is a nice position to be in. The price can keep going up or go down and you still can be ahead. If your trade is up 10% you may decide to sell if the price goes down 5%. The higher the price goes up the higher your lowest exit price goes. There are many possible exit points here that will still leave you with a profit.
Selling silver can be much more complicated than what I have described above. But even for the long-term silver investor these points are valuable. Today you can use a stop-loss order (not within the scope of this article) as a tool for selling silver related securities, or any other investment, at any of the points specified above. Keep records of what you do. Learn from your mistakes. Have some fun! Remember, you really don't make a profit until you sell.
Just a clarification... I am a BIG fan of silver. I can say this with certainty, I am not selling silver (bullion, coins, bars, etc) for a very long time. But, I even have an exit strategy for that. I do however, from time to time, buy and sell silver ETFs on a more short-term basis.