The Four Deadly Sins for Investors — Part 3: Selling Too Early
We're partway through the Four Deadly Sins for Investors, a series built from years of helping successful traders and investors find the weak spots in their process. So far we've covered buying too early and buying too late. If you missed either one, go back and watch those first, since the phases framework from episode one carries through the whole series.
Today we're switching sides. The first two sins were about buying discipline. This one, and the next, are about selling.
Sin #3: Selling too early
This might be the most painful of the four. It's when you sell a stock or ETF after it's up 10 or 20 percent, then sit on the sidelines and watch as it keeps climbing, 100 percent, 200 percent, or more. If that's happened to you, you're not alone. It's happened to pretty much every investor at some point.
Why it happens
The long-term trend in stocks is up. Look at a hundred years of S&P 500 data going back to 1926: yes, there are painful secular bear markets (the Great Depression, the 1970s, the dot-com crash into the Great Financial Crisis), but the market has always recovered and gone on to make new highs. So if the odds favor staying invested, why is it so hard to just hold on?
There's a well-documented behavioral bias behind it called the disposition effect: it simply feels better to lock in a win than to sit with an unrealized one. Selling a winner gives us a little hit of confirmation that we made a good call. Peter Lynch put it best: selling your winners and holding your losers is like pulling out the flowers and watering the weeds. It's the exact opposite of how you build a strong portfolio.
A live example: Palantir
Palantir's chart from late 2022 through early 2025 is a good illustration, an exceptional two-year run that would have been very tempting to sell into along the way. The investors who stayed with it, rather than banking a 20 or 30 percent gain early on, captured a dramatically bigger move.
The fix: build a trend-following toolkit
The goal is to become a trend follower instead of a trend disbeliever, and stay with strong charts as long as possible. A few tools that help:
Go back to the phases framework: as long as a stock is making higher highs and higher lows, with moving averages sloping up, it's still in an accumulation phase and probably doesn't deserve to be sold.
The 200-day moving average is a good long-term gut check. Even through Palantir's sharper pullbacks (one dropped from roughly $30 to $22), the stock stayed above its 200-day.
RSI is another tell. In a healthy uptrend, RSI tends to hold above 40 on pullbacks. If it's staying in that range, the trend is probably still intact.
Relative strength matters too. As long as a stock keeps outperforming its benchmark, it's probably not time to take it off the table.
Trailing stops that let winners run
For actual exit discipline, a few layers work well together: the 21-day EMA as a short-term first alert (a break below might mean trimming, not exiting entirely), the 50-day moving average as a second checkpoint, and for a more dynamic approach, the Chandelier Exit system (from Alexander Elder), a trailing stop based on Average True Range that adjusts to a stock's normal volatility instead of using a fixed percentage or a lagging moving average. The idea is simple: you stay in the trade as long as the stop isn't hit, and the stop moves with you.
Mindless investors sell as soon as they're up 10 or 20 percent, just to feel the win.
Mindful investors stay with the trend, using tools like the Chandelier Exit to hold on as long as the trade keeps working.
One more email covering the final sin is coming later to you this week to complete the series.
RR#6,
Dave
Following trends instead of predicting them takes real discipline, and that's exactly what our Market Misbehavior premium membership is built to help you develop. Join and you'll get expert investor advice straight from me, access to hundreds of other investors in our member community, Flight School, your Weekly Flight Plan, and the Monthly Chart Review.
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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity. For full disclaimer, please see our website: marketmisbehavior.com/disclaimer.
