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If you are invested in the stock market, knowing when to sell your stocks is one of the hardest decisions to make. Do you hold on to a stock that is performing poorly or hold out hope that it will rebound? If your stock is doing well, do you sell it immediately, or take the risk that it will continue to increase? There are no definitive answers to these questions, but having a plan before you buy and remaining informed as to general industry and company activity may increase your chances of financial success. This guide on how to decide when to sell stocks will outline some strategies that can help you make these decisions.
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Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.-
Introduction
- Investing in the stock market can be a rewarding, yet risky, business. Although there are no hard and fast answers as to when to buy and sell your stocks, being well informed while doing so can increase your chances of market success. Before you purchase stocks, you should always evaluate your finances and plan when you want to sell your stock, regardless of how well or poorly it is doing.
Step 1: Decide on a Sell Price
- Before you buy a stock, you should already have your sell price in mind. Be aware of how much you are prepared to lose and consider selling your stock if it continues to decrease in value over a period of several months. Although there's the temptation to hold out if your stock is continuing to rise, stick to your initial sell plan and sell your stock once it gets to a certain price—and remember that you are still coming out ahead.
Step 2: Set a Standing Sell Order
- If you have a brokerage account, create an "open until fulfilled" order. By doing so, your stock will automatically be sold when it reaches a certain price, be it high or low. This means that you do not have to constantly monitor the stock's activity and can avoid the temptation to hold onto your stock even after you have made your planned amount of profit.
Step 3: Keep an Eye on Company Activity
- Although you don't have to monitor every change that occurs in the company in which you have purchased stock, try to remain aware of any large-scale changes that occur and that could affect the company stock.
- You should also keep an eye on the company's fundamentals—management, revenue, earnings, and so on—to ensure that they remain secure. If the company in which you hold interest is involved in any legal troubles or has come under large-scale public criticism, the stock may very well drop significantly; such developments may be the signal to sell.
Step 4: Compare Your Stock With Similar Stocks
- You do not have to constantly monitor your stock activity if you have created a standing sell order, but it is still a good idea to remain aware of general industry trends. If all company stocks in the industry are doing poorly, it may be evidence of a long-term trend. If other competing businesses have recently opened and seem set to overtake the company in which you are invested, you may want to consider selling. If you hold interest in a company whose technology or product is projected to become obsolete or be replaced by improved technology, it may be a good time to sell and invest your money elsewhere.
Conclusion
- Although the stock market is volatile and subject to unexpected changes, ensuring that you keep abreast of general trends and likely changes can reduce your chances of being blindsided and losing your investments. Before you buy stock, you should have a sell point in mind and, if possible, set up an account so that your stock will automatically be sold once it reaches that point.
