What To Do When Your Stock Price Continues To Fall – Learn The Best Time & Strategies To Sell Your Stock For Profit In Nigerian Stock Market
The expectations of a lot of traders are currently cut short right now as I write this guide to knowing when to hold or sell your stocks. Why? The full-year earning season is here and we had hoped for more appreciation of the share price of some selected big cap banking stocks. Besides, a friend of mine bought 500,000 combined units of two top banking stocks as he had speculated a double-digit share price increase when these companies disclose their revenue, profit and EPS figure this week. But, you know what, the reverse is actually happening: the two stocks are already down and It’s looking so strange to him.
The first bank released her financial result two days ago, great numbers, improved cost to income ratio and an impressive EPS figure, he was excited and waited patiently for the stock to run up on market opening but was clearly disappointed as the stock declined by 2% before market close and already down by 7% in the last 2 days. Another was a great popular and most profitable bank, in terms of return on equity, they released their full-year result today with market-beating numbers, but the same trend followed. Right now, both banking stocks are falling sharply and he is asking if he should just sell off to protect his current portfolio value?
I also own shares in one of these banks but no panic, not because I am too confident or don’t lose money but I had already subject myself to a sniper trading strategy that delivers 80-90% winning rate if I hold my portfolio for 3-6 months and that alone, is the discipline that keeps me going on in the stock market.
But, this my friend is already panicking because the red flag on his account is driving him to just sell off. Here is how I helped him regain his foot and confidence which I think will help you know what to do when your stock continues to fall:
- Check whether there is a company-specific news or policy announcement? Sometimes, when you see a massive sell-off, it could be a result of breaking news about the company, government policies or inter-market effect. Inter-market occurs when stocks fall in response to other global equity sell-offs just like we saw in the 2008 market crash. But if none of these reasons is there and the stock is falling continuously, that is most like a profit-taking activity, you don’t have to panic.
- Did the fundamentals of your stock change? As long as the company you had bought reported great numbers and still on a growth path, remain calm. In the stock market, the price is only a reflection of emotions and if it falls out of fear, buy more, eventually, the value of the company in the future will determine what investors will pay. A stock has delivered good results and now it’s falling, don’t you think, the expectations are already priced in and you bought at the peak of the trend? why not wait for the next quarterly results? earning expectations is stronger than the result itself. When a company that had posted impressive numbers, is about to release its next quarterly or full-year result, expectations always drive the share price.
- Locate a key support level. The sell-off you are seeing is a temporary market activity and as existing holders take profit, there are still firm believers of fundamentals who will not sell but hold on to the stock, why not find a key support level price had touched previously before a retracement. Let me use the chart of a banking stock to explain this:
This is the chart of one of the banks which I also have some shares in. Let’s discuss what I mean by support level using the chart; did you notice the way price fell to the yellow region marked A and quickly reversed upward? now the same yellow region was also tested again (at region B) with rejection, these two regions are what we call key support levels. What is support level you may ask? These are region price tested at least twice before going up again. This region is very critical as I take most buy decisions there. The risk here is, if you don’t know how strong or weak the market is, you may lose your money on a break below the support level.
In my book on “My Little Secrets That Make Money In Stock“, I shared two powerful tools I use to gauge the strength of a market when it’s testing the support region, these tools accurately tell me whether a fall is strong or weak. During a market fall like the chart above, I quickly check to see the strength of a stock and if it’s weak, I wait for the market to reverse and buy immediately.
That’s all for now and so when next you see your stock price fall, use the guide here to take better decisions rather than selling out of fear.