Lessons On Selling Stocks

Lesson 1. Cutting Losses

 The first sell rule is to get rid of any stock that falls 8% below your purchase price.

 It’s critical to follow this loss-cutting rule regardless of how highly you value a stock. Personal opinions get in the way of smart selling decisions.

 The larger the loss, the higher the recovery you need to get back to the break-even level. (A 50% loss requires a 100% gain to break even.)

 Strong stocks sometimes initially retreat close to their buy point (as determined by the stock’s chart pattern). This doesn’t necessarily mean you have to sell, unless the stock goes 8% below the purchase price.

 Avoid making sell decisions based on tax concerns or commission rates.

Lesson 2. Taking Profits

 A simple, clear-cut strategy is to sell after your stock has gained 25%, unless the stock has gone up 20% in just one to three weeks.

 Stock charts are especially helpful in spotting signs of weakness in stocks, often providing clues much earlier than any fundamental indicators show.

 Look for climax runs, exhaustion gaps, failed breakouts, significant violations of the 50-day moving average and other characteristics of a weakening stock.

 Remember to check the market direction daily. If the market comes under distribution and weakens, your stocks will have a hard time making any further advances.

Lesson 3. Selling Indicators

 Consider selling a stock if it shows fundamental signs of weakness, such as a steady deceleration in earnings or sales.

 Watch for weakness in the stock’s industry group. When the leading stocks in an industry decline, the other stocks in the group may typically go down, too.

 If there are signs that mutual funds are consistently selling the stock, you should consider selling.

 Too many stock splits close together in time can push a stock lower.