Knowing when to end something is extremely difficult. For example, starting a relationship is easy. Knowing when to end it is difficult. When it comes to stocks we tend to have the same emotions. We find it difficult to pull the trigger or sell button. We may have invested months or years holding this stock and lack the mojo to step up and end it. Here are some tips on when to sell.
Determine the trend of the overall market. Nothing is more frustrating than to buy great stock picks in a declining market. It may buck the trend but will have trouble doing so.
Sell before you buy. What that means is have a plan. Do your research. Study the product or service, the balance sheet, projected earnings, cash on hand, and debt ratio. Do a sector analysis. Ask yourself: Is this stock in a sector that is leading the way in the market? In other words, position yourself in stocks that are on the cutting edge of a given industry. Next, set a sell target based on your research.
Use some technical signals. A simple tool is the 200 day moving average. This is a long term indicator. If all is well your stock should remain above its 200 day moving average. If it starts to fall below it, start to reevaluate your position. There may be some factors at play that may be unknown, such as a forthcoming earnings report that does not match expectations. Use “stop loss” orders. This is an order to sell your stock if it falls to a specified level. That way you will protect your profits. If you have a losing position, follow the same rule. Place your stop loss at a point where you take a small loss. Do not let your losses run. Losses are like profits. When they start moving, they keep going. Profits grow and losses do also.
Finally, don’t try and pick the top of the market. If your stock reached your target, sell it and move on to your next trade. Don’t torture yourself if the stock keeps going higher.