The percentage gain strategy is an investment approach where you determine a specific percentage gain from your initial investment as a trigger to sell a portion of your investment. This strategy is often used to capture profits while managing risk and avoiding potential losses. It provides a structured way to take gains once a certain level of price appreciation has been achieved.
Here’s how the percentage gain strategy works:
- Initial Investment: You purchase a stock or investment at a specific price.
- Percentage Gain: You decide on a predetermined percentage gain that you’re aiming to achieve before selling. For example, you might decide on a 20% gain.
- Partial Selling: You sell only a portion of your investment when the predetermined percentage gain is reached. This allows you to secure some profits while still holding onto a portion of your investment for potential further gains.
Sample Execution
Scenario: You decide to invest in a technology company’s stock. You buy 100 shares of the company’s stock at $50 per share, resulting in an initial investment of $5,000.
Strategy: You decide to implement the percentage gain strategy with a trigger of 25%. This means you will sell a portion of your investment when the stock’s price increases by 25% from your initial purchase price.
Execution:
- Purchase Date: You buy 100 shares of the technology company’s stock at $50 per share, investing $5,000.
- Price Increase: Over the next several months, the stock’s price increases due to positive earnings reports and market sentiment. The stock’s price reaches $62.50 per share, which is a 25% increase from your initial purchase price of $50 per share.
- Sell Trigger: As the stock’s price has increased by 25%, the percentage gain strategy’s trigger has been met. According to your strategy, you decide to sell 25% of your position, which is 25 shares.
- Profit Calculation: You sell 25 shares at $62.50 per share:
- 25 shares × $62.50 = $1,562.50
- Remaining Position: After selling, you are left with 75 shares of the technology company’s stock.
By implementing the percentage gain strategy, you’ve captured some profits while still holding onto a portion of your investment. In this example, you’ve secured a profit of $1,562.50 (25% gain on the initial investment), while your remaining 75 shares still have the potential for further gains.
As with any investment strategy, thorough research, a diversified portfolio, and an understanding of your own financial situation are important factors to consider. If you’re unsure about implementing the percentage gain strategy or any other investment approach, seeking advice from a financial advisor can provide valuable insights.
