Everyone purchases investments with the expectation that the price will go up, earning profits on that investment. Unfortunately, that doesn't always happen, making it necessary to develop an exit strategy.
It can be difficult to decide when to sell regardless of whether your investment is increasing or decreasing, but more damage can be done to your portfolio's returns when the investment is decreasing. Investors hate selling investments at a loss, which makes it difficult emotionally to do.
When purchasing an investment, write down your reasons for purchasing the investment and when you will sell. That could include both upside and downside sell criteria. As an investment is declining, it is common to come up with excuses to delay selling - it's a temporary setback, wait until next week, wait until earnings are reported, etc. Then, the further the investment declines, the more likely that you will want to wait for the investment to turn around before selling. That is how large losses are incurred.
Instead, set a firm sell guideline, which will ensure that you don't incur substantial losses. For instance, you might sell an investment when it declines by 10% of your purchase price. While it will probably still be painful to sell the investment at a loss, this will ensure that you don't incur major losses in your portfolio. You have effectively put a cap on your losses.
Please call if you'd like to discuss exit strategies for your investments.