How do you know when its time to sell your stock?

Question

I buy a stock, and i want to decide exactly when will i sell it at the time of buying.
if i make the selling criteria absolute, for example, i sell it in the minute it adds 20% to its value, or the minute it loses 15% or its value, i am actually not taking into account what the index of that stock did, lets say i hay a fix portion of my portfolio in stocks, and i bought a nasdaq stock, and sold it because it gained my 20% while the nasdaq in that time gained 25%, so selling it and buying another stock would be pretty stupid.
can you please share your system, wether its absolute (not taking in to account the index) or relative to the index(do you take just one index and so on)
thanks in advance

Answer 1

When to sell a stock is probably as important (if not more) as when to buy it. I like the answers here. Our stock picking group has regular discussions on when to sell and posters here would be great contributors, so I invite everyone to join:

http://finance.groups.yahoo.com/group/TradingZoom/

Having said that, I think buying right helps determine your sell points. If you buy as close to the pivot as possible, you buy when the stock is most likely to go up than down - so your stop loss 7-10% below the buy is not likely to be triggered. If you buy an extended stock, you are better off placing your stop just below the previous support (Darvas boxes). You keep the stock as long as it is making higher highs and higher lows. Once you have a decent profit, you start selling gradually to lock in the profit because you never know how high a stock will go - use JRJC as an example.

Answer 2

You determine your exit strategy/sale before you even buy a stock. This is an important basic rule. These are the things that I would recommend to you:

1) Determine what you are investing for. Capital gains e.g buying low and selling high; income e.g dividends, instalments; value or income protection etc?

2) Short or long term investments?

3) Set buying price and sale price.

4) Selling stop loss price; selling profit target sale price. Trailing profit targets etc.

Generally, if you are investing for the short term, i.e less than 2 years, then derivatives are a better option. However, many derivatives expire within 1 month to 3 months.

If you are investing for the long term, then stocks are a better option. Usually, when investing say for 2 years or more in a particular stock, I would suggest selling

1) after you have made 50% profit and want to sell/dump the all the stocks of a particular company.
2) If the stock is older than 2 years and has not progressed as you expected.
3) Selling a portion of your portfolio to lock in 30% profits and recover the initial capital invested in the stock.

If you decide to invest in a stock for less than 2 years, then, I'd recommend that

1) Profit taking at 20%
2) Stop loss at 7%.

Answer 3

Your system of setting an exit strategy prior to purchasing is the way most professional traders do it.

The answer is highly dependent on your time frame. I'd be very concerned for my "profit" if I made 15% in two days.... vs. 15% in two years.

Having said that..... my "system" is based on the technical chart action. Braking patterns or confirming them would help me decide to take all off the table, some off the table or continue with my current strategy.

What your question is also touching is "money management". Many professionals consider "money management" more important than picking the right "stock".

Here's my money management scheme;
My goal is to have a win loss ratio of at least 2-1. If the technical indicators don't show me this possibility.... I'm not making the trade. In other words..... If my maximum loss is $500........... I must have a resonable chance of having $1000 in profit. I'm basing this on an average win/loss of 50% win / 50% loss. That's my minimum. If you're only picking half of the right "moves"... with the right ration, you will make money.

Once I reach a "goal" (a more realistic one, based on the technical chart patterns... not an arbitrary "15%"),I will tighten the stop (to protect profit) (either a fixed stop or a trailing stop). If the profit is well above my goals.... I'll take 50% off the table and then add my "stop".

Your question is great. To answer it in a short forum like this is not possible. Read some good books on technical analisis and stock trading.

Good luck!

BTW: If you're trading "Penny Stocks".... stop right now. It will be years until you're ready to do so (and even... you most likely won't). Trading Penny Stocks is mostly done by amatuers... or traders with significant experiance (taking the amatuers money)..........

Answer 4

Let your stoploss tell you. Set it when you buy the stock, and keep it trailing behind your profits. When the stock decides to turn around, you'll be out automatically. That way, you don't have to demand 20%, you take what you can get this time and maybe get 50% another time. And 15% is a lot to lose on a single stock. You could be broke in no time that way. To take your stake from 85% to 100% requires almost 18%--just to break even!

Answer 5

when the fundamentals go south on the stock.

Answer 6

sell when
1. you reached your goal
2. the risk is to great to keep them
3. you need to offset a tax profit