Today, in the stock market, I decided to sell half of my shares of General Motors (GM) for a small gain. I initially bought this stock a few weeks ago, because the risk-reward indicators that I generally look at appeared to be highly favorable. However, the stock continued to fall so I decided to keep buying to price average into it. Often people are tempted to sell stocks that continue to fall, but I decided to continue buying and patiently wait at least until the stock reverted back to the mean before considering to sell the stock. The “price averaging” and “reversion to the mean” techniques are approaches that I’ve used repeatedly when experiencing initial losses to allow me to recover from these losses and manage risk. All stocks eventually revert back to their means so these techniques can be strategies you can use to improve gains, manage risk, and maintain a sense of patience and discipline when performing your investment activities. As you can see from the chart below the GM stock experienced some steady gains over the past several days and has reverted back to the 20 day Exponential Moving Average (EMA).

As such, I used this as an opportunity to sell some shares. Frequently, major moving averages such as the 20 day EMA serve as resistance zones and support zones to stocks. Since the GM stock has not yet sustained a move above the 20 day EMA I took it as another sign to sell at least part of my position. Stocks that do not sustain moves above resistance zones often decline. Selling half of my position will allow me to use the freed up cash to buy at a lower price should this decline happen and I decide to capitalize on it. On the other hand, the remaining half of the shares I own will allow me to capitalize should the stock sustain a move above the resistance zone which frequently results in significant price increases. So… That’s where things stand for me in the stock market right now… I’ll let you know how things go… Either way I have a plan. If the GM stock rises significantly, or the risk-reward becomes unfavorable in nature, then I’ll be a seller of additional shares, but if the GM stock falls significantly, and the risk-reward becomes more favorable in nature, then I’ll be a buyer. Keep in mind, when performing your own investment activities, that evaluating risk reward, taking actions accordingly, and using techniques such as “price averaging”, “reversion to the mean”, and “resistance and support zones” can help you to realize consistent gains in your investments over time.