First of all, let me take disclaimer that I am not an expert in the equity markets nor a qualified personal finance professional to advise anyone. However, since I have been doing online share trading for almost 12 years now, I thought of sharing my experiences on how I could have made more profits by exiting stocks at the right time (By the way, I never made huge profits but fortunately I am not at loss)
Stock selling strategies and tips
Most people are good at making the right calls when it comes to picking the right stocks at the right time. However, more often than not, after they sell they will be shocked to see that the shares that they sold are moving up faster. This is because they never had a proper exit plan for that particular stock. The following are some tips for you to help you sell your stocks at the right time.
Have a target price when you buy
When you buy a particular stock or share, you should have a target exit price in mind already. This has to be arrived on the basis of the valuation of the stock, prevailing sector conditions, momentum etc. Even if you are investing for five days or five years, this is very important and more over you have to record that planned exit price.
Your first analysis is almost always the best
When you set a target price while buying, that exit price is probably based on thorough analysis and hence the best exit price. You should not keep changing that figure unless the valuation of the stock or the sector it belongs to dramatically changes. If that is the case, you have to re-rate the stock after further analysis and keep an additional exit point and make it a point to sell at this price. If there is no change in prevailing conditions around the stock or the company, it is always advised to sell at the original exit price.
Never sell a stock that is peaking day by day
If a stock is flying on a momentum and hitting 52-week highs day after day, then you may get a better price. Keep putting higher stop losses and change your sell price (above original exit price) to get maximum profits. As a thumb rule, never sell a momentum stock that has just hit the 52 week high.
Sell ASAP if the company falters
If there is negative news on your invested company, it is a call for immediate sell at whatever loss or profit. You have to always keep track of the stock news of your favorite companies via online stock news alerts and not through news papers. By the time you read your financial news papers, you are already very late.
Sell early to balance you portfolio
Another situation where you might exit a stock prematurely is to balance your overall finance portfolio or equity portfolio alone. In the first case, you have decided to keep say 30% in equities and due to several recent transactions if that proportion has gone way up, you may want to de-risk your portfolio by selling a few stocks. Similarly, within your equity portfolio, if a particular sector is over represented you may want to adjust it via further selling of some existing entities.
Sell early for any tax benefits
At times, especially towards the end of the financial or taxation year, you see that your capital gains may be offset via booking loss on certain non-performing or turtle stocks. This is sometimes good to reduce your taxes – based on the existing rules of course – as well as to give further and better buying opportunities in the next financial year.
Never listen to analysts on TV
These are the bunch of foxes who basically wants to play with the sentiments of investors and keep changing their stand from time to time. If necessary, you may have a paid financial adviser, who is interested in making money for you because he gets paid by you but never take those analysts’ free advice. But as I mentioned in one of the tips above, keep track of all news related to your stock and be smarter.
By the way, the tips mentioned here are applicable for those who are investing in stocks and not trading.