When Should You Sell Stocks

The stock market, like any other type of financial market, has its own primary system that ensures its proper functioning. Its rapid growth leads to the strengthening of economic interest in it, so there are many of those who are highly interested in becoming a part of this market. Buying a stock is considered to be the easiest way to get profit there, but it’s also the main reason for disappointment with investment decisions. Most failures can be avoided if you’re armed with knowledge and patience.

When should you sell a stock? This is the right question to ask yourself before making a move, but there is one more thing to consider. Gaining profit on stocks is all about coming to just two decisions: you buy at the right time, and you sell at the right time. Time is crucial here; both of these decisions have to be executed correctly to develop expertise and get to the desired top.

In case you want to know the key differences between forex and stocks, just follow the link.

Buying and Selling Stocks

The amount of money you make is strongly determined by the buying price. Yes, you can be critical about that statement, but this is how it actually works when it comes to a stock market – your profit or loss strongly depends on the moment when the asset has been purchased. If you skip the right moment for selling, the benefits of buying at the right time just vanish. The price of shares, especially when we talk about large companies, changes on the stock exchange every second – just wait for the price to rise and sell them. There is also a great opportunity to use a stop-loss that will close your position at the predetermined price without any risks.

Unfortunately, there are many of those who are faced with real troubles of selling stocks because of being ruled by greed. Yes, some investors are too obsessed with earning more. They’re just ready to hit the risk even when their price target is already achieved and just blindly follow the market tendency without realizing that it’s high time to sell. The good news is that there are several strategies that will help to identify when you should or shouldn’t sell. An important factor in humans’ decision-making process is that we’re all ruled by the emotional part, so these strategies aim to make you take more rational steps.

The price of shares, especially when we talk about large companies, changes on the stock exchange every second – just wait for the price to rise and sell them.

Let’s think of such a scenario:

An investor is about to buy a stock at a price of $15 with the planned intention of selling it once it reaches $20. Everything goes according to the plan, and here is the price hitting $20. But no, our investor just wants to wait a bit longer, hoping that the price will go up. Well, the stock price reaches $22, and the investor’s rationality is kept in the background. Unexpectedly, the investor observes the situation where the stock price is now $18. That’s the reality. Our investor earned only $3 instead of earning $5. He could also lose a certain amount of money by selling at the price of $10. Greediness will let you down; you can be sure of it.

When to sell a stock

If you’re among those who consider up and down movements of the price as the main reason for selling a stock, we have bad news for you – it’s the thing you should never do. We are lucky to have some valid reasons for hitting the sell button prioritizing rationality. So, how to decide when to sell a stock? Here are the following signals you should pay attention to:

Stock Price Increases Dramatically

The stock market is highly volatile, so there is a high possibility that the price of a stock may rise in a split second. And here comes an interesting part where you can understand your actual drivers and make conclusions. There are a lot of investors who consider the impressive rise in price as the green light for waiting a bit longer and, as a result, snatch a large sum of money referring to the buying price.

Market winners or just simply real professionals are ruled by humbleness and rationality. They aren’t obsessed with the idea "I need more right here, right now" because they clearly understand that the stock market hates the concept of being considered as some kind of lottery – you never know what can happen. They’re just focused on selling stocks.

Don’t underestimate the stocks that are cheap as long as the situation might change pretty soon because of speculation, and they will definitely rise in price, so you just take what the market offers and move on.

If you possess an unstable stock, it’s better to sell it during a dead cat bounce (short-term recovery in the price of an asset). A sharp rise in the price can also be the result of some unexpected news that usually holds such increased positions for a short period of time and should be considered as a serious sign for "waiting till it hits the target."

If you’re among those who consider up and down movements of the price as the main reason for selling a stock, we have bad news for you – it’s the thing you should never do.

The Price Hits your Target

Long story short, once the price hits your target – sell the asset without hesitation. This is all about sticking with a plan. Don’t chase the idea of waiting a bit more because there were a lot of cases when that resulted in losses. It’s a mistake to consider a one-time situation where you sold your asset at an even higher price as a new strategy. No, you were just lucky, and we highly recommend you to forget about this so-called approach. As it has been already mentioned, prioritize rationality in every single move that defines your position.

Buying a Stock was a Mistake

There is no need to owe a losing stock. You’ve probably done some research before making a decision to buy a stock, but the fast-moving market dictates its own rules. There is a chance that you will come to the conclusion that buying that stock wasn’t a profitable investment because of certain analytical mistakes, unexpected news, or just the company’s hidden pitfalls that weren’t covered in the first place. Well, it happens all the time, and there is nothing to be upset about – just sell that stock, even if it involves a loss.

You should always rely on your data and analysis instead of blindly following market sentiment. In case there is the situation that the company is losing its positions to competitors and doesn’t meet your profit expectations, it’s the right time to sell.

You can find more information on stock indicators here.

You Just Need Money

Yes, this might be pretty obvious for you now, but a lot of investors are ready to ignore the fact that selling a stock today is a better idea simply because they can’t afford holding it longer and need money right away. It’s an asset, and there are certain situations and times when people need to cash in on it.

Whether you have new ideas for starting your own business or buying a car, that’s the decision that comes from your personal preferences and plans, so keep that in mind too.

Methods

Every situation is very individual and might require the same kind of approach. There are always certain methods you should use when you find yourself in the middle of nowhere and don’t know how to sell stocks with profit:

  • Fundamental analysis is an accurate and simple approach that helps an investor decide when it’s the right time for selling stocks. The general concept here is to make investment decisions being armed with publicly available information that will possibly affect the price formation of an asset. This kind of information can be acquired from news, official company reports, or other online services.
  • The second method, which will help you to identify the right moment for selling a stock, is technical analysis. It presents the statistical data where the theory of probability is an important factor.

Conclusion

"Should I sell my stocks now?" – that’s the question every stockholder asks himself/herself most of the time. In the long run, it’s crucial for investors to develop their own rules for buying and selling stocks, which will effectively perform their tasks to achieve the investment goals. This is where putting the right priorities is crucial since they define how successful you’re as a market participant. The emotional part can greatly influence the decision-making process, so stay attuned to the data and put your feelings aside. This is how you will understand how to buy and sell stocks successfully. Rationality is king. Always.

by Justforex, 2021.04.19

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