How to Know When to Sell Stocks

Hassan Maishera - January 09, 2020

when to sell stocks

Making money in the stock market involves two critical actions; buying and selling. Timing those decisions is the key to successful trading, however, it’s one of the hardest skills to master. Mastering when to sell stocks can take years of practice, but there a few quick tips that can help you improve your timing.

Traders only make money when they sell a stock for a profit. If you’re holding stocks that are up, your gains are only potential profits until you sell. This brief guide will give you a better idea of when to sell and how to go about it.

Selling is Hard, For Most Investors

Buying stocks is practically effortless, but it can be hard to let go. Traders can get attached to their positions for various reasons, including greed, excitement, and other emotions.

However, traders can’t stay in a position forever.  They need to sell their stocks to make a profit. It sounds simple, but perfecting the timing is no easy task.

Knowing When to Sell Stocks

There are countless reasons why you might want to sell a stock. These are a few common reasons that might make you want to sell.

Failing Fundamentals

If business fundamentals start to go downhill, it might be time to start planning your exit. You can spot trouble by following earnings reports and company press releases. Any signs of stress on revenues, earnings, debt levels, or other key operational metrics could indicate that a company is headed for trouble. While fundamentals don’t always align with stock prices, they can be a valuable warning signal that company operations are taking a turn for the worse.

If you have a healthy profit on deck, consider making an early exit if you see signs that a company is facing fundamental business declines.

Trade Discipline

In order to stay disciplined and stick to your plan, you should set target prices for your exit and entrance points. Before you enter into a trade, identify your sell limits. If it falls below your minimum price, you can sell to avoid further losses. Conversely, you should also consider exiting once you hit your profit target. You don’t have to sell everything, but you should at least take a portion of your position off the table once you hit your predetermined price target. Adhering to this practice will help you be a more disciplined, less emotional trader.

Dividend Cuts

When a company starts cutting its dividends, it’s time to consider selling your shares. A dividend cut could signal big financial problems. If a company can’t afford to make its dividend payments, it could be having cash flow problems or much worse. This is a big red flag and a clear sell signal.

Running Too Hot

If you’re lucky enough to hit a home run trade, you could find yourself on a very profitable ride. However, you should know when it’s time to take the money and run. Stocks can’t go up forever, so you need to realize that you’re going to have to get off the gravy train eventually. If you wait around too long, you could be stuck holding the bag when it comes back to Earth.

Don’t be greedy. If your position doubles in value over a short period of time, you should at least take half off the table. That covers your initial investment, and the rest is house money. Consider using a trailing stop-sell to exit your positions automatically if share prices start to pull back.

If you really like the stock, you can always buy it back on a dip. Be smart and sell if you’re rocket-ship trade looks like it’s running out of gas.


Sometimes, a company’s valuation gets significantly higher than its competitors. When a stock is on a rally, its P/E ratio can easily get out of line from its peers. It’s not uncommon for this to occur naturally because traders are willing to pay more for the best companies. As a result, it’s not a code-red sell signal. However, if a P/E ratio significantly exceeds its historical or industry averages, it could be a signal to sell.

Portfolio Rebalance 

As your positions gain in value, they can become disproportionate segments of your overall portfolio. You might have to sell and shift capital to other investments in order to maintain balanced allocations. This practice is called rebalancing your portfolio, and it helps reduce risk and maximize your chances at steady gains.

When To Sell Stocks: Final Thoughts

Timing is one of the most important aspects of investing. If you want to trade, you have to know when to sell stocks and when to buy them. It’s not an easy art to master, but practice makes perfect. However, it makes it a lot easier to spot the best time to sell if you research your trades and stick to your game plan. Sign up for Dork Alerts to get regular updates on market activity and trade tips that can help sharpen your skills. Click here to sign up now and get our 2020 Growth Stock Guide for free.

Hassan Maishera is a cryptocurrency expert and a Stock Dork freelance contibutor.

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