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Has the Time for Selling Stocks Come?

When your stock turns into a winning player you may become frustrated about whether it is time to sell it. Many financial advisors recommend the avoidance of selling a winning stock, whereas other specialists claim that selling is an inseparable part of the trading process.

Consider the following case. You have purchased a stock that has become winning. One of the alternative courses of action that you can undertake is to sell the stock and enjoy its profits. On the other hand, you can keep the stock and wait to see its future development.

However, you should consider the following steps regarding the second option. They are required in order not to lose the profits you have acquired.

  1. Examine Company's Fundamentals

    The first thing you should examine is the fundamentals of the company that has issued the stock. This is required in order to see whether the company has stable fundamentals. Failure in the latter may lead to a fall in the price of your winning stock.

    Make a careful examination on such things as cash flow, debt, sales and etc. If there is a problem don't wait for the market to notice these problems and quickly sell the stock before the price has fallen and you have lost your profits.

  2. Set a Target Price

    When you purchase a stock it is a good idea to set a target price, which if reached triggers the selling of the stock. The target price of the stock may be both above and below the current level. This means that if the stock increases or decreases to a certain level you should sell it.

    The setting of an upper limit is many times required for the purpose of insuring yourself against the potential inability of the stock to sustain a market price that is above a certain level. A bad event may trigger the fall in the price and as a result you may lose your profits.

    Additionally, many investors know how much they want to get from a stock and establish the upper level. Once reached, they dump the stock.

  3. Watch for Events Suggesting It Is Time for Selling

    Many events can have a negative effect on the value of your winning stock. Thus, you should carefully consider them and whenever they occur you should embark on selling. Such events may include:

    • Too much attention from the media

      Too much attention on the part of the media may lead to artificially inflated prices of the stock since many investors show interest. After the hype passes the price may start to fall and result in the loss of profits.

    • Slowed growth of the stock.

      If you possess a growth stock, it is good to consider its selling after it has reached the point at which its growth speed has started to decrease. This is required because the market shows negative attitude toward growth stocks that are unable to sustain their growth.

    • Better investment opportunities

      It may turn out that there are other stocks that provide better returns. The latter may present a lower level of risk as well. Thus, it is recommended that you consider the selling of your stock and purchasing one of these.

    • Decreased or Eliminated Dividends

      At one point or another, the company issuing the stock may start to decrease the dividends it pays to shareholders. If they are also completely eliminated, then this may indicate that the company is undergoing some change or problem. This represents a good reason for selling the stock and avoiding losing your profits.

Many financial experts advise the selling of part of the stock. The rest is left to grow further. In this way you get part of your profits and let the rest generate further returns.

Finally, don't be too hasty and make frequent trades just because you have obtained some profits from a stock. The commission fees that you will have to pay for the frequent trades will eat up your profits. Thus, several winning trades per year are just enough to fill your account with profits.

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