Stock Trading Strategies > Chart Patterns

Swing Trading - How to Sell A Stock

Ever notice how everyone tells you what to buy and when, but they never tell you when to sell?

If you ask any successful investor, they will tell you that selecting a stock is easy. Its the selling part that is the toughest. You spend hours investigating a company, you spend hours looking for the best time to buy, and countless more hours watching as it moves higher or lower. Its not difficult to gain an attachment after spending so much time together.

Here are some suggestions:

After a Stock Moves Higher
a) Don't let greed take over. Its easy to start counting your new found wealth before its in your bank account. Protect your profits by having a trailing stop loss in place. By placing a stop loss 5-10% below the current price (you can also use tonight's closing price if you can't follow the action during the day), you can lock in a profit (or protect yourself from a larger loss). If the price closes at $10, set your stop loss at $9.00 or $9.50 depending on your risk / reward tolerance. If the price dips below your stop loss, you're out of the market while others are holding onto a stock that is moving lower. Its always a good idea to lower your stop loss the higher your gain. For example, if you buy a stock at $5, you might place your first stop loss at 10% below that price ($4.50). As the stock moves higher, place another stop loss, but at a lower stop loss, perhaps, say, at 5% if the stock moved to $10 (setting your stop loss at $9.50). This trick will help you to keep more of your money. Remember, 10% of $5 is $0.50, while 10% of $10 is $1.00. Multiply those amounts by the number of shares you're holding, and you can see why we suggest using a smaller amount for your stop loss.

b) Don't get greedy. If your stock doubles, sell half your position. This way, you can let your winners run without risking your original capital. That's what the name of the game is. Keeping the capital and adding to it.

c) Now that the price moved up, if you didn't already own the stock, would you buy it today? When your answer is no, its time to sell. If you wouldn't buy it at the current levels, why would someone else?

d) Use technical analysis. When your chart is saying its time to sell, don't question it, just do it.

After a Stock Moves Lower
This should be the easiest thing to do, yet is the hardest. This is where many investors make mistakes, costly mistakes. Don't let fear and doubt question what you know is the right thing to do.

After you have spent hours looking over every inch of info a company can produce, and you've laid down your hard earned money, there is nothing in the world tougher to admit than to say you were wrong. At the end of the day, the market is right. All of the due diligence doesn't mean a thing if the majority of people don't agree with your conclusions. A stop loss will help. If you buy a $5 stock, set your stop loss at $4.50 or $4.75 and keep it there. If you get hit, its better to stop your losses at 5-10% than to let them grow higher. Remember, 50% losses started off as 5% losses. If you get stopped out, take your lumps and go back to the drawing board. You missed something, or the rest of the world missed something. Either way, there are not enough buyers ready to buy your shares for more than you paid for them.

Fear will not allow you to make a rational decision. It can and will paralyze you and make you sell at the bottom or hold when you should sell. Stick to your plan. You wont hit homeruns each time at bat, but if you can keep your losses low, when you finally hit that homerun, you'll have more money to enjoy it with!

Food for thought:
If you started with $100 000 dollars, you could make set your stop loss at 10% and make 37 trades before running out of money. Set your stop loss at 5%, and you'll be at bat 76 times. Set your stop loss at 3% and 128 chances are yours. Needless to say, it doesn't take a genius to figure out that if you can make a profit when you have at least 37 chances, trading is not for you. Not everyone has $100 000 to start off with, so odds are, you'll have fewer chances. Increase your losses, and you wont be investing after only a few trades.