When do I sell a stock? This might be a question you’re struggling with, and you would feel less anxious if you knew exactly what to do.
Stockbrokers 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 stockbrokers 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 his trading account’s performance.
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 Ph.D. 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.
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When to sell a stock that I will explore, the tips for when to sell 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 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 it. 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 makeup 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 tends to go before pulling back — and stocks tend 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 understood when to sell a stock and apply these basic stock trading tips. Don’t make selling 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 observe your stocks because your stock trading account’s performance depends on you and not your stockbroker.
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 setups, and more.