Do You Know the Reason Why You Sold Your Shares?
At first glance
this sounds like a stupid question but surprisingly enough there are actually
traders who are not really aware of the reason why they did sell in the first
place.
Let’s look at a few reasons why. Perhaps you might recognize a few of
these reasons in your own trading history.
The first major reason funny
enough is to make a profit. For isn’t that the
main reason why we are trading in the stock market in the first place. Aren’t
we? Though I must admit I wonder sometimes looking at the irrational behavior of
some traders you see currently trading in the market place.
Taking a look at
the current behavior of the Australian Stock Market over the last month you will
have seen thousands of shares being sold off at a loss. Two of the main reasons
for this were panic and fear.
There is an acronym that I am very fond of and
that is the one for fear. It is “False Expectations Appearing Real.” And this is
definitely occurring all the time.
A great example is when the market took a
turn for the worse recently and share prices started to go downwards, the
traders mind became paralyzed by fear. Their immediate reaction was to sell
their shares, this action immediately crystallized a paper loss into a stark
reality.
If they had taken a moment to realize that this was only a short
term occurrence and if they had also remembered the past history of the stock
market they might have remembered that there have been downturns before only to
see the stock market bounce back again to a higher level than previously.
A
worse case scenario which often occurs all too frequently, particularly of late,
was those traders who were utilizing margin loans to invest in
shares and for what ever reason were not able to meet the requirements of a
margin call are were forced to sell their shares at a loss whether they liked it
or not. They are still hurting today.
Another reason that is becoming more
prevalent is when greed plays a part in a share holders reaction to an
announcement by a company who they feel has not met with the traders profit
expectations. Their attitude seems to be “stuff you! And, “we’ll teach you a
lesson,” and they go and sell off their holdings in that particular company
sometimes at a loss.
Crazy reaction to my way of thinking, you are cutting
off your nose to spite your face.
A great example of this was Leighton
Holdings (LEI) who only this Friday announced their 6 monthly profits up to
December 3Is’ 2007.
Profit was up from $190.6 million up to $250.7
million.
Revenue was up from $5.7 billion up to $6.56 billion.
An interim
dividend was declared up from 45 cents to 60 cents. An upwards increase of
30%.
The reaction to that statement was that in the first 90 minutes of
trading the stock was sold off and dropped 17%. At close of trading sanity
prevailed and the stock bounced back to an overall loss of 5.5% on the days
trading.
As to why that happened I haven’t a clue. Obviously quite a few
traders, judging by the volumes involved, weren’t happy with the result and for
whatever reason decided to sell off their stock
causing this dramatic drop in the share price.
Do you see this as logical
trading. I just wish all my stocks performed as well as Leighton
has.
Hopefully you can see what I am getting at. There are no doubt more
reasons why a trader sells than I have covered in this article. But ultimately
it is up to each individual trader to have a preconceived idea in place as to
what price they wish to sell at, and most importantly to know WHY they are
selling.

About the Author:

Christopher Strudwick is a keen amateur share trader on the Australian Stock
Market Visit his weblog for more free articles and useful information at http://www.asxnewbie.com

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