27 Apr - The Psychology of Selling, Scalping, the Fear of Missing Out, and Why You Shouldn't Get Too Attached to Prices

Author: /u/missing_the_point_

OG Post link: https://old.reddit.com/r/Superstonk/comments/mzr0xk/when_i_started_trading_years_ago_my_profits_on/

The Psychology of Selling, Scalping, the Fear of Missing Out, and Why You Shouldn't Get Too Attached to Prices

There have been a lot of posts about selling on here — People asking when they should sell, others telling users when not to sell...so, I thought it might be helpful for the new traders to hear some real-life examples of what it's like when a retail trader starts to make real money in the stock market. I also think it might be beneficial for the more experienced traders to learn other strategies and hear different thought processes.

Why You Should Trust People Will Hold Until the Ceiling

Take it from me, guys, as someone who has profited over $50k+ dozens of times on a single stock, only to hold and watch my profits dwindle down as the price fell back to my average...I assure you, selling too early is not something we need to worry about.

Selling is the hardest part of trading. When you start seeing gains snowball, $1k, $2k, $4k, $8k..., it's going to be difficult to decide to sell. You're always going to hope your gains keep doubling, because greed is stronger than fear and regret.

Here's an example:

Last December, I was holding a stock that made a pretty decent profit in a short amount of time. I decided to make the "smart choice" for once and sell off half of my shares, worth about $20k. The next day I wasn't really paying attention to the market because I was getting ready for an event. Around 8:45pm I realized the market closed and I hadn't checked my portfolio all day. When I logged into my account, I saw the that stock I sold off the day before was up another 120%. I dropped my phone and facepalmed, hard. It was no exaggeration or overreaction. It ruined my night. Losing potential profit for some reason can feel worse than losing real capital. It's a strange phenomenon

Don't get me wrong, playing it safe and profit-taking is not a bad thing. I just want people to realize it can be extremely frustrating when you miss out on huge gains.

Alternatively, a year prior, the opposite situation occurred on a much larger scale. I was up about $150k+ on a single stock in less than a month and was expecting great PR to come out. It eventually did, but the month-long run turned out to be a sell the news, pump & dump. Almost immediately after the press release came out, it dropped about 55%. My phone died on the way to work and by the time I got to my computer, I had lost about $76k (profit) in the span of about 2 hours. Sold immediately and just laughed at myself. It sucked, but I still made money. It not as difficult of a situation as you might think.

It's much easier to manage your emotions in the second scenario — on the way down. Selling too early, like in the first scenario, is a lot more stressful. If you sell everything too early during the squeeze, you're going to go through absolute hell. This is ESPECIALLY true if your broker won't let you use funds until trades clear after 2-3 days.

If it happens, selling at $5k and watching the price climb to $20k, $40k, $80k, etc. will probably be one of the most anxiety-filled experiences of your trading career. You're going to debate whether or not you should buy back in, but you may be too afraid it's reached the ceiling already, and therefore won't want to risk losing the profit you successfully secured. Or you may decide to risk it anyway and end up losing money. Or you'll risk it and the price will rise another hundred trillion dollars. No one knows what's going to happen. I certainly don't want to find out the hard way, therefore you guys will catch me, safely selling on the way down.

During a Short Squeeze is the Worst Possible Time to Scalp

I'm sure you've seen posts on here warning you not to scalp because it will affect the MOASS. While that's true, I strongly suggest you do not try to scalp because I'm willing to bet all my shares most of you would fail at it. That's not to imply that I don't think we have skilled traders here, this is just not a situation where scalping is a successful strategy. Yes, some may get lucky and time the market right, but I can't even explain to you how stressful it is to scalp a stock that you're expecting to skyrocket.

In hindsight, it's so obvious to look at a chart and know exactly what you should have done and when. But in the heat of the moment, you won't be able to handle your emotions. It happens to everyone, even the most skilled traders. Although the most skilled traders are smart enough not to think they can time the market in a situation like this.

What's going to happen is you're going to sell, the price will start going up again (believe me, it ALWAYS does), and you will panic buy back at 10-15% more than what you sold for because you'll be terrified it's going to run away from you. THEN the price will start going down again (believe me, it ALWAYS does). Congratulations, you probably just lost yourself a few thousand dollars and gave yourself a crippling anxiety attack.

Please trust me, scalping is a terrible strategy under this circumstance. Utilize the strategy on lower volume stocks you can day-trade. Or, my best advice, on stocks you're extremely bullish on for the long-term. When you see a dip, buy. If you get caught bag holding for a few days, no big deal...you know it's going up anyway. Rinse and repeat. That was my main strategy when I was teaching myself how to day-trade. I swear I have never had a single loser using that strategy.

Fear of Missing Out is Real

I'm not going to go too far into detail about the psychology of bag-holding, because I don't think many of the people reading this, who are holding GME before the squeeze, will be left bag-holding.

GME will probably leave a lot of people holding some heavy bags, but it won't be any of us. It's extremely hard to resist chasing a stock. FOMO is so much stronger than you may think it is. I've been trading for 10 years, I know better than not to chase stocks, but I still occasionally fall into the trap.

Once the squeeze begins we're going to see a lot of new buyers hopping on the bandwagon. Even people who told us we were wrong and that the squeeze won't happen. Unfortunately, a lot of those people will probably buy closer to the top and choose to hold a bag when they should actually cut their losses. But oh well.

I see this happen time and time again. It's the reason why I don't give people specific stock tips. The only person I give tips to is my sister, only when I'm absolutely 100% bullish on something. It's always the same god damn process though. She ignores my tip, then sees my profits grow from 100% to 200%, to 400%, to 800%..., and THEN she buys. Every. fucking. time she buys at the absolute top and loses tons of money. And to reinforce an earlier example, she also refuses to accept my advice to sell, because she tries to hold out for a reversal that will never come.

I suggest that when the MOASS begins, stop encouraging people to buy GME. Of course, the rest of us want high demand, but man, it's so awkward when your friends lose money on your stock tip. Even if it's their own stubborn fault.

Do Not Fall in Love with a Stock or Price Target You Missed

This is actually the main reason why I decided to write this all down. A friend of mine, new to trading, started explaining why he wanted to hold onto his Bitcoin, even though he 100% believed the price was in decline. This thought process is textbook noob trader.

Although he thought the price of bitcoin would continue to fall, he couldn't let go. "If only I sold when it was $64k," he kept telling me. But I know that would have never actually happened because he was hoping it would keep going up. Everyone struggles with this. People will fall in love with a price and hold much longer than they should. Prices will come and go, and they just keep telling themselves "If it reaches $X again, then I'll sell" and then the price goes even lower. They'll keep lowering the bar farther and farther while promising themselves to sell when it reaches higher targets. The biggest problem with this plan is that the price may not hit its target again anytime soon. A lot of times the price can fall back to their average before they realize their fatal mistake — they should have sold way sooner.

I'm not too worried about the price falling back to anyone's average with GME, because we'll all be on the moon. I just thought it was important to mention. It happens ALL THE TIME to traders. Still happens to me, like in my intro example. Although I've gotten much better at making a plan and following it. The more you trade, the better you will get at selling; It just takes experience.

Here's the advice I gave my friend, which is a much more rational strategy: If you think a stock has hit its peak and your plans are long-term, selling for the short-term is the best strategy. If you sell, you will not lose any money because you're locking in profits. If the price goes down, that's great; You'll be able to buy even more shares. If it goes up, so what? If you were wrong and the price jumps 10%, you can always just buy it back if you're bullish long-term. You'll still have the same amount of money, you just won't be able to buy as many shares with it. Your other alternative is to watch your profits bleed as the price drops, and potentially risk losing all of your gains.

Anyway, that's about all I can think of that would apply to the short squeeze. My final advice is to be patient. Let it play out, don't even think of scalping, and don't hold too long after you believe it has reached the ceiling. I'm not even going to warn you not to sell too early because I don't think anyone will. But, when you do decide to sell, consider selling off multiple lots. It's a lot easier, for example, to sell only half at first. That way, if the price goes up, great, you're still making money. If it goes down, good thing you already sold half.

You guys are thinking way too hard about this. Stop worrying and get pumped.

It's important to always keep pushing yourself to learn new information and to stay motivated. You're not always going to have a short squeeze in the pipeline. There will be days when you will lose a lot of money, boring stretches where everything seems to trade sideways, and periods when your entire portfolio is at a loss and you're unable to trade anything.

"I'm here to tell you, that #1 — Most of you say you want to be successful, but you don't want it bad; you just kind of want it."

TL;DR: Multiple trading scenarios and emotions you'll probably experience during the MOASS, written to help new traders prepare themselves and to share strategies and alternative thought processes with other experienced traders.

Edit: Just re-emphasizing how important it is to hold and not scalp. That was the biggest mistake I made during the situation in my title. I never did out the math, but I'm positive I would have made more money if I just left it alone. It's so much harder than it seems. One of the days the stock went up 60%, but I sold off half at 20%, thinking that would be the high that day. Ha, I can't explain how devastating it was to watch the price shoot up another 25% a couple minutes after I sold. My head almost exploded. So yeah, 10/10, not worth it at all.