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When Should I Sell My Stock? How to Know When to Sell Your Stock

When should I sell my stock?

Exiting your trade position at the perfect time is one of the hardest things to master. I constantly find myself looking back and thinking, if I just would have waited 5 more minutes to sell I could have made an extra $100, or more. Or, if I bought to cover 5 minutes earlier I would have X more dollars right now.

But what’s the point of feeling frustrated with your timing of when you sold your stock after you’ve already sold it? If you make a profit, what’s an extra couple of bucks either way? Many traders are high strung and type A perfectionists, always striving for more and better so those extra little $100 chunks can be a thorn in our side.

I try, whenever I exit a trade, to not look at what happened right after I sell. That makes me solely appreciate my profit and live in a moment of victory. If I made money then I did my job and that’s all.

But no one is reading this blog to figure out how to mentally deal with knowing you didn’t exit a trade at the perfect peak. You’re reading it to know how to know when to sell your stock.

Aside from the little $100 chunks we miss from time to time on smaller trades, there’s also that big burn on the backside you get when you ride with $AAPL from $375 up to $700 then back down to $400, knowing you could have sold it at $700 and made a killing, but held onto it because everyone kept saying it would go to $800. No one wants to go through that, ever.

Here is my 4-step thought process on exiting a trade successfully:

1. Consider the risk of the trade, that is how many shares you are trading and how volatile the stock is. For riskier more volatile trades, you should watch the trade more closely and be ready to exit quickly if need be.

2. Consider the length of time you are willing to hold a stock. If you’re a day trader, you may be ok with holding a stock for minutes, hours, days, or a week. If you’re an investor, you might be more comfortable holding your stock for weeks, a month, or years. The longer your time horizon, the more flex you have in your exact exit time.

3. Consider the length of time you hold your position before getting it to a targeted profitable level. If you have to hold a day trade for three days just to make $200, you may want better return and decide to lengthen your time of holding the stock. If on the other hand, you buy a stock and it for an hour and it hits a your target of say $2,500, then you may sell it hours before you thought you would. The closer your stock’s buy/sell comes to meeting your goals, the quicker you should sell.

4. Consider the stress you’ve endured during a trade. Stress can be internal or external to the trade and can occur as a result of earnings missing expectations, an overall down day in the market, a terrible news event, such as the Boston Marathon bombing, or wherever else stress enters into your trading atmosphere. The more stress you endure during a trade, the more clouded your decisions become. If a trade is overly stressful, it may be best to exit at once and move on to another trade. Stress kills most things, not the least of which is good trading mojo.

Once you’ve considered all of these honestly and know the amount of profit gained on a trade or investment, then you should be able to pinpoint the moment for you to sell fearlessly.

Everyone’s trade timing is different. Exiting is up to the individual, and much like entering into a trade, you should not take a tip from someone on exactly when to do it. Your risk tolerance, your targeted gains, and your stress tolerance are uniquely yours and that is precisely why only you should make the decision of when to sell your stock.

As an example, if I had Apple for the long term and bought in at $375, I would have exited when it hit $500 or $600 because that would have been plenty of gain for me. I sell when I feel satisfied with the amount of money made, considering the risk I’ve undertaken, the stress I’ve endured, and the length of time I held the position.

These four simple rules, plus listening only to your own mind, will give you clear vision of how to know when to sell your stock so you can confidently exit a trade.

Whatever form of stock market work you’re doing, make sure it turns you on.

And don’t sweat the losses. You give it all back in the end….whether you want to or not.

Got all that wisdom from Mr. Warren Buffett