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Using Sell Signals to Improve Results

by Kate Stalter

There are three elements of successful portfolio management: buying, holding and selling. Yet many investors focus their energies almost exclusively on buying and fail to make a plan for selling.

It is crucial to find the best stocks and buy at the right time, but to keep profits, it is equally key to understand when holding is no longer the right move and the time to sell has come.

It is also important not to downplay how much emotions can interfere with decision-making. When it comes to selling, many people feel it is somehow wrong to let go of a stock, even when they have significant gains on paper. But it stands to reason that if a profit is going to be realized, selling is absolutely necessary.

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Kate Stalter is a writer and content editor for Investor’s Business Daily and host of the “Daily Stock Analysis” video at Investors.com.


Discussion

Oliver from Illinois posted over 3 years ago:

Continual vigilance is the key. Follow the guidelines.


Bob from Minnesota posted over 3 years ago:

I use Point and Figure charts to determine the sell price. If the stock declines to the sell price, I sell.....no ifs, ands or buts. If the stock advances over time, I adjust the sell price upward to reflect the movement of the stock.


George from Illinois posted over 3 years ago:

those charts are to small and not readable


Rolland from Florida posted over 3 years ago:

George: Check the lower right corner of your screen, There may be a zoom feature that goes up to 400%


Ronald from Virginia posted over 3 years ago:

Valid points. Need to have a methodology for selling inline with your risk tolerance and time to retirement and then the discipline to execute - however, easier said than done.


Anthony from Minnesota posted over 3 years ago:

Solid Analysis, love to see more on charting stocks, next time when to buy (besides reverse head and shoulders and cup and handles).


Kevin from Iowa posted over 3 years ago:

I agree that setting a stop loss is critical, but I prefer to use a stop based on the support level of the stock rather than a set percentage (such as the 7% mentioned in the article). The support level reflects what other buyers and sellers set for supply and demand of the price of the stock. The market doesn't know what price you paid for a stock, so using a fixed percentage won't coincide with where the stock may have a healthy correction to before turning back around.


Dave from Washington posted over 3 years ago:

Are there any Mutual Fund Investors or index fund investors here.

For managed Mutual Funds (as opposed to index funds) I like to say if a Fund falls below it's category average for 3 years in a row, it is time to get out.

Actaully I am more in favor of index funds, of the major indexes such as total market index, or SP500 index. These in general are not going to fall below there category average by much, so I'm not even sure if there is a good sell signal for a Total Market index such as VTSMX.

Does anyone have any thoughts on that.

Dave


William from Maryland posted over 3 years ago:

When the methodology gets publicized, it no longer works,


Daniel from North Carolina posted over 3 years ago:

A blanket reccomendation of 7% for all investors is just not reasonable.


Donald from Florida posted over 3 years ago:

Great Article.


Nicholous from South Carolina posted over 3 years ago:

Anthony, William; when you set up a "Stop Order" you usually have to calculate the "seven percent less than purchase price" and enter that as a fixed dollar amount. That way your brokerage firm does in fact know what you paid for the stock. Then when there is a correction the stock price has to fall below the calculated 7% price before you automatically sell. I agree that once the market value has gone up, say 14% you would be wise to reset your "Stop Order" again to 7% lower than the current market value to hold on to some of your gains and not find yourself holding onto a stock hoping to break even.


Arden from North Carolina posted over 2 years ago:

I asume you are using closed market prices to determine your 7% loss.


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