When to Sell Stocks – Top 5 Triggers You Should Know

General Ideas For Selling Stocks

We would also add a third factor for making a decision to sell stocks and that is personal reasons. For example, you may urgently need the money for a house makeover or for a gift at your kid’s wedding.

We will try to cover these three factors briefly in this article.

No.2 Selling Stock for Fixing Loss

As we’ve already mentioned, when you buy stocks you must have a plan with your specific expectations. If the expectations are justified, you will make profit by selling stocks (as we showed above).

But what about the situations when reality falls short of expectations?
There is no doubt that you need to sell stocks and accept the loss. This is certainly more difficult emotionally, than locking in the profit. However, in order to preserve your capital, it is critical that you learn to accept the loss.

Take, for example, TSLA stocks. Let’s assume that you built an ascending channel based on the reference points, which are shown on the day chart below with arrows.

TSLA Technical Analysis

When the price dropped to the lower trend line (1), at around $675, you bought the stock. The fact that it did not bounce up sharply could have alerted you, but you decided to act according to plan and not sell stocks until the price reaches the top border of the channel. However, the candlestick of May 10 (2) clearly indicates that the plan is not working. The price is dropping beyond the channel, and, what’s even more unpleasant, on a growing volume, which indicates sales pressure. You need to urgently close the position and sell stocks at a loss, before it becomes catastrophic.

To avoid experiencing negative emotions from making a difficult decision, we recommend using a Stop Loss order, which is executed automatically. For example, in the above situation, it would have been appropriate to set it at around $640. Your target was at around $800, and therefore a $35 loss is an acceptable risk compared to $125 return potential.
You can’t be successful in every single one of your traders. By selling stocks at a loss, you lose a battle, but you don’t lose a war. All champions experienced defeats. By controlling the risks and choosing stocks with high potential, you want your return to cover your losses, and thus earn you a profit in the long run.

No.4 Selling Stock For Financial Needs

Opening positions in the stock market you will quickly notice that the price is a stubborn thing and does not always behave the way you expected it to. It is the same in life. You cannot predict everything when you plan your life. From time to time you may need to spend money on the things you could not have predicted.

That’s fine. Stocks are a way of saving and multiplying capital. There is a time when you transfer money into stocks, but it is not a one-way street. There will be a time to extract capital from the stocks and transfer it into cash to address your needs – buy property, spend money for your health, move, support family members, etc.

In this case, it is important not to sell stocks that form the basis of your portfolio. For example, if you focus on S&P 500 in the long-term, try to hold the index funds untouched in order not to disrupt your main financial targets. Try to make do with the sale of stocks that you bought for short-term speculative goals or other stocks that don’t disrupt the main profile of your portfolio.

What is The Best Time to Sell Stocks?

There is no universal answer to this question. Let’s be objective, in order to answer it you need to know what is the purpose of selling these stocks. And what was the purpose of buying these stocks? And then, you have to account for a multitude of factors, including the signals of technical analysis.

Be that as it may, we offer you two options, when the decision on selling stocks will most probably be the right one.

Option 1. Selling stocks amid general hype

If shoe shine boys are giving stock tips, then it’s time to get out of the market.”

It is not so important who said this on the eve of the 1929 stock market crash – Joe Kennedy, J.P. Morgan or John Rockefeller. The meaning behind the phrase is what’s important. If everybody talks about how good it is to buy stocks, think about selling them.

A more recent example is the dotcom bubble burst in 2000.

Dotcom bubble burst in 2000

From time to time, speculative bubbles form at the exchanges, when the growth of assets attracts an abnormally high number of retail investors looking to get rich quick. The price curve in these cases goes up exponentially. At that, it is too early to sell as selling is still risky, but buying is already risky, because it is too late.

Analyze the history of burst bubbles in order to be ready to sell stocks at a time, when everybody else only dreams of buying them.

Option 2. Selling stocks amid a global economic recession

Usually, a stock index grows 8% per year, with stocks from different industries showing various dynamics of growth. Some industries may decline, even when the majority are showing growth.

However, if all stocks start to simultaneously drop in price, you don’t need an IQ of over 130 to understand that things are not good and that it’s time to sell stocks. A decline in quotations may indicate serious economic issues, or it can be associated with global shocks, politics, wars and disasters.

In these situations, only few companies will continue to show stable growth. Therefore, it would be prudent for an ordinary investor to sell stocks and secure cash, and then wait for a more favorable situation.

Energy Select Sector Charts

The chart shows decline in stocks of different sectors in spring 2020, when the world entered the Covid-19 pandemic. The stocks of technology companies (broken green line) performed best, but it was still dangerous for the deposit not to sell them.