When To Sell A Stock？6 Signs When It Might Be Time To Sell A Stock!
Sometimes, it might not be about the moving averages or Bollinger bands, or any kind of trading indicators in general. Sometimes, you just need to get rid of whatever stock you're holding due to one circumstance or another. Sometimes, the best thing to do with the stock you have is to, well, sell it. The next question is when do you sell a stock? How do you sell it? What are the signs you see that tell you it's time to sell a stock? We'll discuss all these and more in this article. Let's dive right in shall we?
5 Reasons For A Long-term Investor To Sell A Stock
At this point, it is important to note that these reasons listed below are not officially our recommendations. You can still choose to hold on to your stock. It's your choice.
1. Lack Of Belief: We'll bring XC into this for a moment. Let's say when you bought the stock from XC, a multi-million dollar company, it looked promising. You were so sure the stock would amount to something. However, as time goes on, you realize the stocks of XC aren't going anywhere, this means you've lost your belief in XC as a company. It's okay to sell the stock at this point.
2. Opportunity Cost: Now, this one might not be easy due to our attachment to our stocks. But if you realize there's another way you could utilize your dollars more profitably (say purchasing ETFs and Cryptocurrencies for example), then you might want to sell the stock and invest in those. However, as we said earlier, as traders, we are attached to our stocks so this might not be a walk in the park.
3. Private & Personal: This is when you sell a stock, not for profitable reasons or some change in the chart but for personal reasons. There are a multitude of reasons as to why you might need the money. Sometimes, it's okay to sell the stocks and attend to whatever personal matter you're dealing with.
4. Taxes: Tax consequences alone should not be a particular reason to sell a stock but sometimes, due to the variations in tax fees on stocks, you might want to consider it. Taxation generally helps some traders and investors to determine which stock to sell or keep. Profits on stocks are generally subject to taxation fees, particularly when the stocks weren't purchased from a retirement account.
5. Valuation: Stocks are generally looked at their price to earnings ratio, this ratio helps investors compare stocks of the same price from different companies to their earnings as well. The higher the price, the higher the number to earn. Sometimes, however, this ratio might not be enough to give you info on whether the stock would rise in the future or not. One way you could get close to accurate info on this is to compare the price with historical data. This would give you a kind of indication on whether the stock is being overly priced and help you determine if you want to sell it or not.
When Is A Good Time To Sell Stocks
When it comes to time, there are two best ways to determine this. Date and Time of the day. Let's get into that.
Date: Research has shown that investors who sold their stocks at the time the company owning the stocks made an earnings report are likely to earn twice as much as those who sold at any other time. In other words, try to see if you can sell your stocks around the time the company would be making its earnings announcement. This would help maximize your profit. To know when companies in your account are releasing their earnings report, check out NASDAQ's calendar.
Time Of Day: If you're a veteran trader or a professional investor, you might want to consider selling your stock around the opening or closing period of the stock market. It's a known fact that volatility is always high during these two periods so selling by then might help you make money off the market. This is another way to help maximize your profit. For clarity, the market opens around 9:30 a.m EST and closes at 4 pm EST.
If you want more information on how and when to sell your stocks, you might want to watch this video. It'll give you more clarity.
When To Sell Stock For Profit
Most of the reasons we mentioned above are part of the reasons to sell a stock for a profit. While it's generally not considered to be a bad idea to sell a stock simply because its price went up or down, it might be necessary for some situations. We'll like to add a few more reasons to sell a stock.
Portfolio Balancing: Sometimes, your portfolio might not be balanced and to rebalance it, you might need to see some stocks. A lot of professional traders see this as a necessary move. A way to know your portfolio is unbalanced is when you realize you own a high-performing stock. While this might be the dream of every trader, you might want to sell part of the stock, the last thing you want to do to balance your portfolio is have most of your money invested in a company's stock.
Stock Exposure: If you're getting close to when you would retire, it might be a good idea to reduce your investment in stocks and invest in bonds instead. Bonds are generally safer. If you don't know what percentage to invest in stocks, a popular way to know is to subtract your age from 110. Sometimes, your portfolio might be heavy with stocks, this is a good time to sell them for profit.
When To Sell Stock At A Loss
Like we said earlier, it's not that good of an idea to sell a stock simply because the price decreased. There are some times, however, that you may need to cut your losses and get rid of the stock before you make irrecoverable losses. Whatever you do, make sure you're not prevented from selling a stock simply because its price went down in the stock market. Now, let's say you stopped believing in the company or the reason for buying the stock in the first place is no longer available or just doesn't apply anymore, your best option might be to sell.
When Not To Sell A Stock
Just as there are times to sell a stock for profit or loss, there are times when it's just wrong to sell. One of the times is when the price increases. Sure, it's every investor's dream to buy low and sell high, but think of it this way, the stock's price rose for a reason, if this reason still exists, it will keep rising. The second reason is the opposite of the first. It's when you sell a stock just because the price is reduced. You don't need an expert trader to tell you that buying high and selling high is not profitable to anyone. The last reason is taxes. Now, as we explained before, if you're going to sell a stock because of taxes, there have to be other reasons tied to it. Selling a stock due to tax-loss harvesting alone is not considered to be a good idea.
Sell Stock For Valuation
This is when you buy a stock at a certain price to sell it at a target price. Once the stock reaches the target price, the next option is to sell it. Common metrics used in calculating valuation include the price-to-earnings ratio, price-to-sales ratio, and the price to book ratio. The metrics mentioned above can also be used as indicators and would help tell when a stock is being overly valued.
In other words, the idea behind this is to compare the price of the stock to historical data and set the target price to the one on the data. Let's say you hold stock in XC that you bought when the price to earnings ratio is 12 times the earnings, now if you check the historical data and you realize the five-year average is around 18.6, you might want to sell at that target price. This is known as a fixed sell signal.
There you have it, all you need to know about purchasing a stock, buying a stock and selling them. At this point, it's important we reiterate that just because your stock is in the one or all the positions we mentioned in the article doesn't mean you necessarily have to sell them. They don't amount to a strong recommendation. It's your stock so you can hold on to it as long as you want. However, if you want to sell them, we would advise you to follow the procedures listed above so you can maximize your profits if the stock price increases or cut your losses if it's the other way round.