Understanding when to sell stocks is one of the most difficult tasks when trading securities. Many traders easily understand the need to buy stocks when their price temporarily decreases, or then, they are sold at really low prices. But on the other hand, when should you sell them? The natural classic buy and sell strategy allows the common investor to generate income from the stocks in his portfolio, but this method does not provide explicit guidance on when to sell the stock or what is an acceptable price to sell. The bottom line is that no one really knows what the stock price might be in the future. However, there are some ways in which traders determine when to sell a stock and do it deliberately.
Steps
Step 1. Determine your target income level
Traders with a clear goal of income know in advance when to raise money from the sale of stocks. This is one of the methods of determining in advance the moment of the sale of shares.
Step 2. Think in terms of generating income from trading securities
Usually, experts recommend maintaining annual or other regular turnover of stocks in the strategy of buying and holding them. The idea is that the investor sells stocks that have risen significantly in value during the year of ownership, and reinvests funds in cheap stocks in anticipation of another rise. Skimming the cream will allow an investor to make money on a significant rise in stocks in their investment portfolio.
Step 3. Avoid selling at a loss or selling during a temporary drawdown of the stock
Some traders are forced to sell stocks when they lose value, suggesting a continued fall in price or a catastrophic bankruptcy situation. Otherwise, it is bad to panic and sell stocks if they dip slightly. Many trends in the value of a share become reversible over time, but the trader will have to decide for himself when it is really necessary to minimize his losses and sell shares at a loss.
Step 4. Sell shares when the market is calm
Many professionals can talk about the dangers of hasty selling in turbulent market waters when turbulent market activity makes it difficult to pass orders to buy and sell securities. Execution of orders can become problematic and expose the trader to the risk of losing some of the stock's value.
Use limit orders. Such an order sets the minimum order execution price, without which the transaction will not be executed. This is sometimes useful to avoid selling below your desired price
Step 5. Know the moment and results of a forced foreclosure
Those who speculate in short-term buying and selling of some stocks often create a storm in a glass of water themselves, and also lose a lot of money on paying commissions. When a certain threshold of a trader's funds is reached, forced closure of his transactions can be carried out, which threatens with serious losses.