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I would like to know if there is any theory/strategy behind booking profits when it comes to investing?

Many times I have observed the stocks rallied 20-40% in the span of 2-4 months. Since I am investing in these stocks for long-term (3+ years), I try to hold it but in a couple of months the same stocks trading near to my entry point. And then I regret not booking the decent profit at a higher level.

Is this a very common thing, when it comes to investing?

When should a retail investor book profit from particular stock?

closed as primarily opinion-based by Pete B., Dheer, JoeTaxpayer Oct 6 '18 at 0:14

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Is this a very common thing, when it comes to investing?

It's certainly not rare, but is probably the exception rather then the rule

When should a retail investor book profit from particular stock?

When you think the future return potential of the stock is not as high as other investments of similar risk.

Of course, that is a vague, academic answer, but it is because the question is not answerable. There are many strategies (setting trailing stop loss orders, technical analysis, etc.) but there's no way to know when a stock reaches it's high point, or to even know when it's return potential has diminished.

If this amount of volatility is uncomfortable to you, then it suggests that your risk tolerance is not high enough to own single stocks. You might be better off owning broad mutual funds so that you're insulated from this type of volatility.

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A retail investor should sell his long calls or long stock when the stock reaches it's high price. Unfortunately, knowing when that price will occur would involve knowing the future.

You have to determine what your objectives are. If you are a long term investor, you ride it out until your outlook for the stock has fundamentally changed.

If you are concerned about giving back 20-40% short term gains, then you need to develop a plan to lock in some of that gain. That could involve selling all or just a portion of the position, trailing stop orders, or more sophisticated option strategies that hedge the gains.

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