Selling Into Strength

Selling Into Strength
See also

Selling into strength - refers to the practice of selling off all of a long or short position in a situation where the stock index of a given security goes up. It is a proactive strategy for investing in primary and derivative instruments. Very often used by investors with a conservative investment approach. This means that in a long position, in order to avoid the temptation to make more profit, they give up this risk in order to make more profit. This means that when a trader buys a stock expecting it to reach a certain level, he sells it before it reaches its peak. This is due to the fact that he will not want to completely trust his predictions and will prefer to monetize the invested money in any way.

Convservative strategies of investing

As mentioned at the beginning, selling into strength is a conservative investment strategy. They result, among other things, from the fact that very often, in the case of publicly listed companies, investors'; temptations are so large that they are unable to give up on maximising profit. In this way they often keep their securities in order to sell them at the highest possible price.

However, this is an incorrect approach, as the stock exchange is such a variable tool that it is almost impossible to predict the precise moment of the peak of an index's value. Therefore, it is very often necessary to take a riskier or more conservative approach. Selling into weak is a total alternative to selling into strength and consists in purchasing shares in the moment they fall, hoping that this is their final moment and that the shares will grow from that moment on[1].

Therefore, two investment methods are distinguished:

  • Risky - selling into weak
  • Conservative - selling into strength

As can be seen, such an approach is much more risky than the approach of selling into strength. Nevertheless, two main characteristics can be distinguished. Selling into strength is not as profitable as selling into weak. This is a relative claim, however, as a conservative seller can still gain small amounts, while a risky seller can lose, but later on he will gain enough from a single transaction to make up for the losses and outperform the conservative[2].

Selling into strength as trading method

Trading methods are so complicated that selling into strength is one of the simplest. It uses mainly analysis based on Candlestick charts and technical analyses with insignificant use of historiograms. This means that it is a method that almost every beginner or advanced investor can use without much difficulty [3].

However, it is susceptible to fluctuations and high inaccuracies as it takes into account too few variables to represent potential future events. Therefore, it is worth using it when you need to make an investment/sale decision in a short period of time. It is not recommended as one of the main drivers of the investment portfolio.

References

Footnotes

  1. F. Belo, X. Lin, S. Bazdresch 2014, pp. 129-177
  2. M. Jasemi, A. M. Kimiagari, A. Memariani, 2011, pp. 3884–3890
  3. H. Guosheng, H. Yuxin, K. Yang, Z. Yu, F. Sung, Z. Zhang, F. Xie, J. Liu, N. Robertson, T. Hospedales, Q. Miemie 2018, pp. 3884–3890

Author: Weronika Brach