I never buy at the bottom and I always sell too soon. — Nathan Rothschild, famous British Merchant banker

A sound stock selection methodology is essential in determining what stocks to buy and the best time to buy them. However, making the right buy decisions is only half the battle. Investors should be equally concerned with learning how and when to sell a stock when it isn’t acting right, and when to take a profit when their selections prove successful.

Cutting Losses

It’s been said that even the best stock speculators are correct only about half the time. This being the case, it is crucial that investors be equipped with a disciplined sell strategy for controlling losses. When using William J. O’Neil’s CAN SLIM selection criteria, the objective is to buy stocks just as they are breaking out from sound price patterns. However, if this breakout fails or the stock begins to decrease in price, investors must have the discipline to accept facts, admit at some point that they could be wrong and cut the loss. The most important rule for determining when to sell and cut losses is the following:

Always sell a stock if its price drops below 7% or 8% from the original purchase price.

An investor’s goal should be the minimization of losses and the maximization of gains. By setting a stringent 7% or 8% no exceptions sell floor, investors can keep small losses from becoming catastrophic losses.

Taking Profits

Selling a stock after it has increased from its original buy point is perhaps the best feeling an investor can experience. But deciding exactly when to sell and how much profit to lock in can sometimes be confusing. Here is one simple rule for newer investors wanting to secure profits.

Sell some of your stocks if they move up 20-25% from the original buy point.

The exception to this rule would be a powerful stock that increases 20% or more in one to three weeks. Investors might want to hold this type of stock for at least eight weeks to take advantage of further potential price run-ups. Investors should also move sell points up from a 7% decline from the purchase price, to the original purchase price if the stock has increased 10% to 15%.

Remember, a key to investing successfully in the stock market is to never take a huge loss in any one stock, and to lock in your profits wisely.

To learn more about selling rules please visit IBD University at this link — Sell Signals

Also, go to our Investor’s Corner archive and select Sell Stocks At The Right Time from the list under View This Topic to view past articles — Sell Education