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.
In this article
- First Sell Rule: Cut Losses
- Second Sell Rule: Protect Gains
- Third Sell Rule: Look for Signals in Stocks
- Conclusion
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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.
Consider this: When the general market topped in March 2000, millions of investors did not understand the signals. It has been said that roughly 80 million people lost $7 trillion in the ensuing months because they held stocks that tumbled ever lower, rather than selling to keep their gains after the dotcom boom. By spotting critical sell signals, you can affect a big difference in investing results.
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Discussion
Continual vigilance is the key. Follow the guidelines.
posted over 2 years ago by Oliver from Illinois
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.
posted over 2 years ago by Bob from Minnesota
George: Check the lower right corner of your screen, There may be a zoom feature that goes up to 400%
posted over 2 years ago by Rolland from Florida
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.
posted over 2 years ago by Ronald from Virginia
Solid Analysis, love to see more on charting stocks, next time when to buy (besides reverse head and shoulders and cup and handles).
posted over 2 years ago by Anthony from Minnesota
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.
posted over 2 years ago by Kevin from Iowa
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
posted over 2 years ago by Dave from Washington
When the methodology gets publicized, it no longer works,
posted over 2 years ago by William from Maryland
A blanket reccomendation of 7% for all investors is just not reasonable.
posted over 2 years ago by Daniel from North Carolina
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.
posted over 2 years ago by Nicholous from South Carolina
I asume you are using closed market prices to determine your 7% loss.
posted about 1 year ago by Arden from North Carolina
