When To Sell Stocks - A Quick Guide for Investors

In the simplest terms, making money through investing in stocks depends on buying and selling at the right time. If you get the timing right, you stand to earn money. The difficulty lies in identifying the perfect time to make a move. It’s not easy to know when to sell stocks.

If you’re an aspiring investor or own stocks and are thinking about selling stock to make a profit, this guide will help you.

In this article, we will discuss when to sell stocks and offer advice for investors waiting for the right moment to take action. 

When To Sell Stocks

Knowing when you should sell a stock is crucial for making profits, but it can be difficult to identify the right time to sell. Most investors aim to buy some stock when prices are low and sell when they are high.

Buying is a relatively simple process, but it’s more challenging to know when to sell a stock. 

There are both extrinsic and intrinsic reasons to sell a stock. We will explore these in detail to identify the factors that motivate a sell decision and help investors choose a good time to sell. 

Reasons To Sell Stocks

Intrinsic Reasons

Intrinsic reasons to sell stocks relate to factors that impact stock value, such as market movements and news linked to economic or corporate changes. Here is a list of potential intrinsic reasons which may prompt you to consider selling:

• Realizing You Made a Mistake

Many investors will be familiar with this scenario. It can be tempting to invest in a ‘hot stock’ after watching prices rise steadily, but what happens if you buy stocks and then regret your decision once it starts performing poorly? If you realize that the investment was a mistake, it’s usually best to sell, even if you stand to lose a small amount of money. 

• Dramatic Price Rises

Dramatic price rises are guaranteed to turn heads and get people talking. It may be tempting to buy stocks when prices are increasing rapidly within a short time, but it’s best to proceed with caution. 

Often, prices soar due to speculation or rumors, which can be dangerous. Just as prices can rise quickly, they can also fall dramatically. If you find yourself in this situation, it’s wise to do your research and try to find out what is driving price hikes.

You may decide that it’s best to sell the full position or, at least, sell part of the position to protect your investment. 

• Hitting Price Targets

Many investors buy stock intending to sell once they reach a specific price. If you have purchased a stock that has lost value or promised yourself that you would sell once it hits a particular price point, you should probably stick to that plan. 

Resist the temptation to wait and see if a stock struggling for a while will defy the odds and rise further; don’t hold onto stocks that have managed to reach a price target just because they may yet do better.

• Understanding Technical Inflection Points

If you are buying stocks or already have some that you are thinking about selling, it’s essential to understand technical inflection points and learn how to know when to sell a stock. If a stock is trading just above a multi-year low point and then drops, it makes sense to sell and exit the position.

If the value is climbing and breaks a key point on the ascent, you may want to sell only a part of the position.  

• Negative Sector News

When you own stocks, it’s vital to keep up to date with financial news. Look out for potential red flags that could impact your investment, such as bad news from a competitor.

If a company is having trouble within the same sector as an organization you are investing in; this could spell trouble. You may wish to think about selling unless you are highly confident that your investment will not be affected. 

• Deteriorating Fundamentals

There are multiple reasons why stock fundamentals deteriorate, including slow growth, intense competition, and increasing costs. If the fundamentals start to slip, this is a warning sign for investors. 

Earnings reports often indicate the first signs of trouble, and even minor issues can prompt sudden market movements. For investors, it’s essential to be able to determine whether the current deterioration is only temporary or a sign of worse things to come. 

• Market Instability

It can be challenging for investors to keep track of the market. This is especially true during uncertain times when values rise and fall often and the market is unstable.

If there is a wobble, it may be beneficial to analyze your portfolio and consider culling investments in companies with a high debt burden and those at high risk of folding. 

Extrinsic Reasons

Extrinsic reasons to sell a stock are linked to the investor rather than the stock itself. Here are some examples:

• Reassessing Your Finances 

One of the most common reasons investors sell stocks is to release their funds. The investor may need money to cover living costs or bills, fund new investments, or explore different opportunities, such as buying real estate. In some cases, investors may also decide to sell a stock for tax purposes.

• Balancing or Altering Your Investment Portfolio 

Some investors may opt to sell stocks if they want to balance or alter their investment portfolio. You may decide to reduce risks and explore safer investments such as bonds, or you may wish to rebalance the portfolio if you have stock that has risen in value dramatically. 

• Changes To Your Lifestyle or Financial Demands

As we age, the reasons we need money and the ways we spend it often change. Young investors may decide to sell part or all of the stock to fund a down payment on a house, while older investors may sell stocks to ensure they can enjoy a comfortable retirement. 

In many cases, there may be a combination of reasons prompting investors to consider selling stocks. 

When Not To Sell Stocks

Timing is critical if you’re trying to determine when to sell a stock for a profit. Just as there are good reasons to sell stocks, there are certain scenarios where selling may not be the best option. 

Here are some examples of when it may be prudent to avoid selling stocks:

• Increased Prices

It can be tempting to sell stocks when prices have increased, but there is a risk of losing out. Stocks gain value for a reason, and those on the rise often continue to increase in value. It may be worth hanging onto your stocks for longer to secure more profit, but it's always a risk. 

• Decreased Prices

If your stocks start to lose value, you may begin to panic, which could compel you to pull the trigger and sell. Falling prices can be alarming for investors, but it’s best to avoid acting rashly. If you don’t need to sell, research the market and consider holding onto your stocks and waiting until the prices rise again. Most investors set out to buy when prices are low and sell when they increase. If you sell at a low point, this goes against that rule, and you could lose a substantial amount of money. 

• Lowering Taxes

Selling stocks can help you lower your tax bill, but it’s advisable to avoid selling solely to reduce tax liabilities. 

What Happens When You Sell a Stock?

Deciding to buy stocks is much easier than making the call on when to sell them. Before you take the plunge and sell a stock, make sure you are 100% certain this is the best course of action.

If you choose to sell stocks, there are various options to explore, including:

• Selling in tranches (try to sell on days when market prices are up)
• Placing a market order
• Placing a limit order
• Placing a sell-stop order.

Before you sell, it’s helpful to research the different selling methods and identify the best option for you. If you don’t need to sell in a hurry and are keen to protect your investment, you could sell part of a position (rather than all of the stock) or place a limit or a stop order on the sale to protect profits. 

Stock Selling Tips

Knowing when to sell a stock for a profit is difficult, and there are several pitfalls to avoid. Here are some tips to help you make sales at the right time:

Look at Company Figures Rather Than Rumors and Noise

Rumors and noise can alarm investors and spread panic. If you own stocks and are thinking about selling, look at company figures and try to understand why share prices are fluctuating and whether price decreases mean that it’s wise to sell now. 

Is the business deteriorating? Is there genuine cause for concern? It’s important to make decisions based on evidence and data rather than headlines or clickbait. 

Avoid Making Decisions Based on Emotional Responses

Human beings are emotional creatures. While we often act on emotional responses, it’s best to avoid doing this when buying and selling stocks. Try not to make decisions based on impatience, fear, or anticipation. Use your head rather than your heart. 

Stick With Target Prices

Many investors buy stocks with a target value in mind. If you buy stocks and they reach the target, consider selling. Greed can cause us to deliberate and delay, often resulting in stocks losing value. Stick with your targets and resist the temptation to move the goalposts. 

Try To Be Flexible

It’s common for investors to change their minds about stocks they hold. It’s beneficial to be open-minded about other investment opportunities and be ready to sell stocks if better options present themselves. 

Exercise Patience

Investing in stocks can be a long game. Try not to panic if share prices drop. If there is a short-term cause, prices will likely recover, so be patient and do not let every minor market fluctuation make you impulse-sell your stocks, as you’ll probably regret it down the line.