One of the hardest things to learn when it comes to investing in the stock market is when to sell. You may find it’s easy to determine the right time to buy based on your personal objectives, but as you sit there and either watch your stock go up or down significantly, when is it the right time to sell?
Deciding to sell your stocks is tough. If your stocks are up significantly, you may feel inclined to sell to make a profit before they go down. If your stocks are down, how do you know they won’t go back up? Should you really sell and take a loss? Determining the right time to sell is a key component of learning to invest and make money.
Do Some Research
If your stock is up or down, but particularly down, and you’re considering selling, take some time to do a little research on the fundamentals before making a decision.
It’s important to understand the real reasons why your stocks are up or down before making a selling decision. Maybe your stock is plunging because of some temporary factor. With the 24-hour news cycle, there can be a lot of ups and downs simply based on the day’s headlines, but they’re usually fleeting.
On the other hand, if it seems as if your stocks could be down because of something larger, such as a long-term decline in the sector or across the market, you may decide selling is best. The inverse would be true for selling your stocks for a profit. If it seems like things may be way up only temporarily, you might opt to go ahead and sell, however, if they’re going up as part of a larger trend, you might stay in.
According to Investor’s Business Daily, one of the best times to sell for a profit is when a stock goes up 20% to 25%. The reason for this target is because research shows this is where rallies tend to peak.
This might not hold true for every stock, but it can give you a good baseline if you want to know the right time to sell for a profit.
Create a Price Target For Yourself
If you want to be strategic with your investments, you should create price target objectives before you even buy a stock. That will let you create limits and decisions based on rational thinking, rather than a knee-jerk emotional response.
There may be times when you have to sell before you hit your price target, particularly if the overall market starts to change, but in general, you can make better selling decisions if you have a price limit in mind from the start.
Do You See Better Opportunities?
Finally, another thing to consider before selling your stocks is whether or not there are better opportunities for you. You should look at the gains you can make with your current stocks, versus what you might realize by investing in other opportunities.
This strategy for determining the right time to sell comes down to opportunity analysis.
Knowing when to sell is never easy, but ultimately it’s important to remember to research the fundamentals, avoid emotional decisions, set price limits for yourself before you invest, and ensure there aren’t better opportunities available.