I’m creating a trading guide library on the site and my mail box is my best inspiration. When I keep getting the same question asked by multiple people it probably means there are lots of traders out there pondering the same thing.
In recent weeks, profit taking has come up a lot. When do you do it? How you do you know when a player has finished rising and might drop?
Knowing when to sell players is harder than knowing when to buy them in my view because:
a) Once you are an “owner” most of us will to varying degrees get emotionally attached/defensive about our decision.
b) it is human nature to be greedy and get attached to players that have done well for us;
c) it’s hard to tell whether sticking with a player through a bad patch is patience or stubborness.
There isn’t a single answer to dealing with this effectively. So I’ll discuss two different methods for dealing with this challenge and then explain which I use and why.
An Intervals System
This is a fairly strict method that can really benefit people who find they keep taking losses (or have a stagnating portfolio) because they hold players too long.
If you struggle to sell because in the back of your mind you are thinking “but what if he does score next game?” or “but what if he does get that transfer to Manchester United?” this might be for you as it can inject some discipline into your trading.
Let’s say I buy a player at £2. I’m confident in him and I think he may rise to around £2.75 or even £3 if his quality shines through. I could set myself some sell points ahead of time and stick to them:
Sell 100% at £1.75
Sell 25% at £2.25
Sell 25% at £2.50
Sell the final 50% at £2.75
In this trade, I plan to enter at £2 and exit at £1.75 if it goes badly and limit my losses. I won’t agonise over whether I am right and everyone who sold is an idiot, I’ll just come out.
If it goes well, I will gradually take profits and bank them as the price rises. This protects me if the price goes down again because I will have already locked in some profit.
By the time I hit my target price of £2.75 I have stuck to my system and sold up. No sweating over whether he will get that transfer or score that goal. We have locked in profits and put them into something else.
If a fact changes and we have a real reason to think we can get £3.50 out of him then we could amend our sell points.
But, the real value in this system is for people who want to inject some discipline into their trading and spend less time agonising over whether to sell or not.
Because you are regularly locking in profits, you will reduce the number of losses you take over time. Of course, you will occasionally get those moments where a player you sold happens to get a big transfer link and you miss out.
This is absolutely fine.
Most transfers hype stories come to nothing and most hyped players are not as good as they are made out to be.
We are putting ourselves on the right side of probability here and, over a season, that will almost certainly pay off.
Trend Driven Selling
Basically, this is about riding price increases as far as you think you can get away with.
There is no rigid “system” here. No single trigger point at which profits are locked in. It relies on a trader’s discipline and their week to week judgement being correct.
If this sounds like the trader is winging it, it’s because they kind of are. You can make this work really well though if you:
– Are very confident and competent at reading the market trends;
– Know what the player is really worth in current/potential dividend returns;
– Know what other people are willing to pay for certain types of player once they know they are good quality.
With this method, a trader is almost like a farmer planting seeds at certain times of year and then having a “harvest season” when he sells.
Let’s take last season as an example.
I picked up a number of youthful, attacking players that were strong trend fits in pre-season and early-season. I was selective based on quality and price to maximise my chances of getting good players cheaply (this will deliver better results than the guy who just buys everything aged under 21 – I don’t have to spread my money that thinly). These were my “seeds” – there might have been around 10 of them.
As the season wore on, some of them broke out, others ended up being mediocre. It was a particularly good crop. Joao Felix, Kai Havertz, Thorgan Hazard, Bruno Fernandes were all in there as the best of them. Others were disappointing (Savic), took a long time to get attention (Fabian Ruiz) or just didn’t succeed (Solanke).
As the season wore on I pruned away the weak players, freeing up cash to double down on the strong ones.
Some of the strong players like Havertz or Felix were pushing insane prices by February time. I could have sold then. If I was using a strict system or using only dividend returns vs price alone, I definitely would have. Certainly, I knew the price was being fueled by hype more than ability in almost all cases.
But, with transfer speculation for some of them, I knew traders would be likely to keep piling in. Traders obliged me and by May they really were running frankly insane prices which is when I sold.
Why? Because these players were being hugely overvalued due to transfer hype. It was time to sell because we had reached a point where the hype was ending and I did not want to stick around to see whether the transfer really happened. That money was shifted elsewhere to plant another batch of seeds because I saw another trend shift underway which became the site Summer Strategy (that’s in the members area).
It is easier for me to predict trader behaviour than it is to predict transfer outcomes, so that is what I take advantage of. I do not usually place bets that are completely dependent on a transfer happening – that’s a mug’s game you can do at the bookies.
This method suits traders with very strong market reading skills who have emotional detachment and discipline and don’t struggle with those “But what if I sell and he scores next week?” or “But what if I sell and he does go to Man. United?” questions.
Which do I use?
I use the second option – trend driven. I spend a ton of time looking at the market and analysing every game so I have the information, skills and the time to do it.
If that sounds like too much hard work, this kind of information is exactly the sort of thing I share with members every single week in the members area and you can check that out here.
Which method is better? That’s perhaps the wrong question and I think it is more which method is better for you?
I think in the current market which is very volatile and trend driven, the trends method I use is probably the optimal one. But you do have to be good at it, you can get it badly wrong.
By contrast, the intervals system is very simple to use and is a great way of injecting discipline into your trading. So if you find you take more losses than you like, or hold onto fusty players too long in general, this is definitely worth a try.
This method will also likely be used a lot more often, including by me, when and if Order Books are introduced to FI.