When to sell a stock is one of the frequently asked questions, especially for new investors who joined the stock market.
The most important point is to prevent emotion and human psychology from getting in the way of making a smart decision, so stay attuned to data (and not your feelings).
I will try to share here some points -which I got during research- which may help to figure out the proper answer to that question
Specify certain profit percentage
This strategy is mostly used by speculators where they have a certain percentage for gain (ex. 5%, 10%, or else) and they sell when they reach that percentage while it seems a good strategy during a bearish market or horizontal market, I believe that it is not recommended during a bull market, and you can mitigate the risk by applying this strategy for a specific portion of your portfolio and not using it as the main strategy.
Reach the patterns’ target
For those who are aware of technical analysis and their pattern (ex. Flag Pattern, Diamond Pattern, Symmetrical Triangle, etc…) each one of these patterns has its criteria to determine the expected target, and upon that you can decide when to sell.
Hunt for a new opportunity
This occurs mostly when a new IPO (Initial Public Offering) is on the agenda, and people think that new stocks have more potential than stocks on hand then they mostly go to liquidate their portfolio or a part of it to be able to invest in this new opportunity.
Better stock performance
Let’s say that an investor is investing in the real estate sector, it is a normal practice to compare the fundamental performance of stocks running in the same sector and when it appears that one of the stocks is performing better than the stocks in hand, it may be a good idea to sell the stock in hand and buy shares in the better performing stock, an approach mainly applied by long-term investors.
You need the cash
Of course, it is one of the obvious reasons to decide to sell depending on personal circumstances.
Clear bearish market signs appear
As stated in one of Mr. Charles H. Dow’s main rules, “Trends Persist Until a Clear Reversal Occurs” so you shall keep your investment growing till a clear reversal sign appears. Here are some bearish market signals:
- Global crisis occurred (ex. COVID -19) pushing markets down and rapidly dropping prices.
- During a bull market, price correction is normal behavior to gain momentum to continue going up, you can assume the target of the price correction by using (Fibonacci Retracements, Elliott Wave, or something else). If the price drops dramatically below the assumed correction figure, we can say that a bearish market signal appeared.
- A major uptrend line is broken by a large volume (Major up-trend line drawn on a Monthly/Weekly frame)
The initial buying decision was a mistake
It is a typical situation that often happens to new investors when they decide to buy stocks based on rumors or emotions and after that they get the knowledge that they get the wrong position. In that case, it is the right decision to sell and stop losses.
I will mention here some points on how to figure out that you step in the wrong position.
- You make your buy decisions based on rumors and then you get the knowledge that stock price increases due to speculation only and there are no solid fundamental or company-recorded losses in their published financial statement.
- You bought at a high historical price or at a strong resistance cluster, violating the famous classic rule of buying at support and selling at resistance.
- You bought a stock in the transportation sector during the pandemic of COVID-19 (during this period most transportation stock globally dropped and medical stock recorded new peaks)
It is commonly known that in the stock market, it is very hard to buy at the lowest price and to sell at the highest price.
It is also known that you will not gain profits in all your trades, but the bottom line is to close more trades getting gains rather than losing, & I hope that some of the tips mentioned above can support you to reach that goal.
I believe there is more to tell about this topic but this is the beginning of a smart decision and I wish you all a good investment journey and to reach your aim in financial freedom.
This was not written by Thndr and this is not investment advice, you should do your own research before making investment decisions.
