When do I sell a stock? This might be a question you’re struggling with and would feel less anxious if you knew exactly what to do.
Stock brokers like to make buy recommendations. But they don’t tell you when to sell. They leave that for you to decide. It’s actually good that these stock brokers don’t tell you when to sell a stock… Knowing when to sell a stock is ultimately a skill that must be learned if a stock trader or investor wants to improve the performance of his trading account.
Why Learn Selling Rules?
Nobody has any business investing in the stock market if they rely on a broker’s buy recommendation. And if you haven’t learned when to sell a stock to protect your profits and minimize your losses, your trading career will have an unhappy ending.
Fortunately, you don’t need a PhD in Finance to figure out when to buy or sell a stock. Buying and selling a stock is as simple as following a few simple rules based on the historical price performance of the stock you own and the historical price performance of stocks in general.
The tips for when to sell a stock that I will explore are based on price and volume charts. These price and volume charts are the tools available to you when you open an online trading account. Becoming familiar with this feature will help you better understand how to use these tips for when to sell a stock.
Only Buy Stocks That Breakout from Valid Bases
The first tip is to buy a stock only if it breaks out from a valid base. Valid bases are price chart patterns that graphically tell you institutional investors (mutual funds, pensions, banks, etc.) are accumulating a stock… And it is the institutional investors that give the stock its initial upward price surge. Examples of these are the “cup with handle,” “double bottom” and “flat base” buy patterns.
Sell Your Stock If It Drops 8 Percent Below Your Buying Price
The second tip is to sell a stock if its current price dips down eight percent below where you bought. These sell orders are placed to limit your losses on trades that don’t work out. For example, you bought XYZ stock at $25. You would place an open order to sell the stock when it drops down to $23. According to William O’Neal, author of “How to Make Money in Stocks,” the 8 percent sell rule helps you preserve your trading capital and future winning trades should more than make up for these short term losses.
Sell a Stock for a Profit When It Rises 20% or More
The third tip is to sell a stock once it reaches a target price that is 20% above the breakout price from a valid base. For example, you bought XYZ stock at $25 and when it rises to $30, you sell it to earn a 20% return on your trade. O’Neal says the 20% stock price target is about how far stocks that breakout tend to go before pulling back — and stocks have a tendency to pull back after they have made a big upward move. He also believes you should follow this tip because you should never let a gain turn into a loss.
I hope you have gained some understanding of when to sell a stock and will apply these basic stock trading tips. Don’t make selling a stock more complicated than it really is. Decide before you buy your stock when you should get out. Eliminate the guessing by following basic sell rules to protect your profit and reduce your losses. Enter those open sell orders and watch your stocks carefully because the performance of your stock trading account depends on you and not your stock broker.
Copyright (c) Leroy Chan
For more stock trading ideas like the stock selling tips in the article you’ve just read, visit Leroy Chan’s site: http://StockTraderworld.com. He updates it with stock trading book reviews, posts on precise stock entries and exits, trade set ups and more.