Select Page

When to Sell Stocks

Curated by the Ticker Table Team

A lot of trading and investing advices focuses on what stocks to buy and when to buy them. But the sell side of a trade is just as important as the buy side – and often more so.

Selling stocks allows you to lock in profits or to limit losses. It also frees up capital so you can invest in something new.

So, when should you exit a position? There are several ways to approach selling stocks, and which one is right for you depends a lot on your trading goals. In this article, we’ll cover how you can decide when to sell stocks.

When To Sell Stocks And Profit

Invest with a Plan

No matter what you hope to get out of a stock trade, you should always enter it with a plan. Ideally, that plan should include specific conditions under which you’ll exit the trade.

A nebulous sense that you’ll sell a stock after it goes up isn’t enough. Instead, you should approach trades with preset signals in mind for when it’s time to sell. These could be different price levels or they could be when a technical indicator crosses over a specific threshold.

Whatever signals you decide to use, be sure to write them down or even tell someone about them. It’s a lot easier to stick to your selling plan when it’s on paper than when it only exists in your mind.

Keep in mind that it is okay to modify your plan if a trade goes better than you expect. However, you should have a strong reason for doing so, and make a new plan for selling if you decide to keep your position open.

When To Sell Stocks - Invest With A Plan

Choosing When to Sell Stocks

Choosing when to sell – that is, figuring out the sell part of your investing plan – is where trade conditions and your trading goals come into play. Let’s look at some of the ways that you can choose when to sell stocks.

When the Trade Changes

Most traders enter a trade for a specific reason. Maybe you saw a technical breakout in the price chart or wanted to trade around an upcoming earnings report.

Once your reason for entering the trade is past, it’s time to exit the trade. For example, if you saw a technical breakout developing, you should sell once the breakout is complete. If the breakout doesn’t happen and the setup has dissipated, that’s also a sign that you should sell. The rationale behind your position no longer exists.

When Momentum Wears Off

Fading momentum is also a good reason to sell a stock. If you purchased a stock as it was on the rise, keep an eye on whether the upward price action is starting to lose steam. It’s better to lock in your profits while the momentum is still helping the stock push higher than to wait for a reversal.

When a Company is Overvalued

If you purchased a stock because you thought it was undervalued, then thinking that it’s overvalued several weeks or months later is a strong reason to sell. For example, say you bought Tesla shares at $400 believing that the company was undervalued. At $800 a share, Tesla might feel overvalued to you. So, it’s time to sell.

You can use fundamental analysis or analyst reports to decide whether a stock is overvalued.

When You are Proven Wrong

If a trade doesn’t go your way, it’s easy to let emotion get the better of you and develop a mindset of holding until things turn around. But it’s much better to exit a bad trade early rather than hoping for a reversal.

You should also sell when your reason for entering a trade turns out to be wrong, even if the trade hasn’t gone against you. For example, let’s say you bought a stock on the expectation that the company would make an exciting new product announcement. If that announcement doesn’t come, don’t stick around – sell the stock.

When You Need Capital

Another reason to sell stocks is to unlock the capital that’s tied up in the position. This is often a reason to sell a long-term investment, especially if you’re investing for a specific financial goal like buying a home or funding your retirement. You can also use the money you unlock by selling a stock to invest in a new opportunity.

Tips for Selling Stocks

When it comes time to sell, there are a few important things to keep in mind. Let’s take a look at three tips that can help you get the most out of your trades.

Tips For Selling Stocks

Sell in Increments

Selling isn’t an all-or-none decision. In fact, one of the best ways to approach selling is to sell part of your position – say, 50% or 75% – to lock in profits while remaining exposed to continuing price movements.

This can be useful for a variety of different trading strategies. For example, you might trade a stock around a breakout, but then see an opportunity to capitalize on momentum following the breakout. You can sell half of your position to lock in profits from the breakout and leave the remainder of your position open to capture any remaining upside. Just be sure to make a new plan for that leftover position, so you know when to sell if the momentum fades or doesn’t materialize at all. 

Selling in increments is also a good way to get capital out of your investments. You can stay invested in a trade while using some of the profits you’ve already made to invest in other opportunities.

Be Willing to Accept Losses

Learning to accept losses can be hard, but not every trade will go your way. Having the ability to recognize a trade that’s gone awry and learning to sell early will go a long way towards making you a more successful trader. Minimizing your losses is just as important as maximizing your profits when it comes to your overall trading performance.

One way to live with losses is to use stop-loss orders with your trades. That way, the process of selling when a trade goes against you is automatic rather than dependent on your emotions at the time.

Don’t Forget About Taxes

Taxes shouldn’t be your primary concern when choosing when and what to sell, but they are important to keep in the back of your mind.

First, your trading profits will fall into very different tax profits depending on whether you’ve held a stock for more than or less than one year. Short-term capital gains are taxed at an especially high rate, while long-term capital gains are taxed according to your income bracket. If you’re thinking about selling a stock that you have owned for 360 days, for example, the difference between selling it right then and waiting a week can be significant when your tax bill comes due.

You can also think about using bad trades as an opportunity for tax loss harvesting. Losses offset your profits when calculating taxes, so small losses can be put to some positive use. Short-term losses can even be used to offset long-term gains, which has a significant tax benefit. However, watch out for the wash sale rule: you can’t use a loss to offset a profit if you buy the same stock again within the next 30 days.

When To Sell Stocks - Taxes

Conclusion

Learning when to sell stocks is a critical part of trading. Knowing when to sell is easier if you enter every trade with a firm plan that includes discrete conditions for what constitutes success. Use incremental sales to lock in profits, and don’t hesitate to sell a bad position for a small loss before things get worse.

The Best Stocks for 2021

Our team has analyzed thousands of stocks in hundreds of sectors. Looking for stocks with massive growth potential? Check out the top stock picks for 2021.

Top Stock Lists

Best Stocks Under $1

Looking for the best stocks under $1? You came to the right place. Stocks that are priced at under $1 per share are often considered to be penny stocks. Stocks valued at under $1 usually belong to new and small companies, including startups. These companies and stocks...

Best High Short Interest Stocks

The total number of shares sold short without being covered, of a particular stock, is called the short interest of that stock. The short interest is represented as a percentage. Thus, stocks with a high percentage (usually over 20%) of short interest are termed as...

Best Coal Stocks

Stocks of companies involved in the mining of coal are known as coal stocks. A large number of companies across the globe extract coal from the earth, which is used to generate electricity. Despite the awareness about global warming and greenhouse gas emissions and...

Best FinTech Stocks

Stocks of fintech companies that implement digital technology to the financial world are known as fintech stocks. Fintech companies apply the advancement in technology to payment systems, e-commerce, cryptocurrencies, money transfers, personal finance, lending, and...

Best Transport Stocks

Stocks of companies that facilitate transportation are collectively known as transport stocks. They include stocks of railroad companies, railway operators, airlines, electric cars, freight carriers, transportation manufacturers, and logistics providers....

Best Telecom Stocks

Stocks of the companies involved in telecommunications constitute telecom stocks. They include stocks of companies that enable telecommunications on a global level, either through the phone or the Internet, wired or wirelessly. With the rapidly evolving telecom space,...

Best Infrastructure Stocks

Stocks of companies that build and maintain the infrastructure of a country, including communications, water, transportation, electricity, and buildings, are collectively termed as infrastructure stocks. It is a broad category of stocks consisting of building bridges,...

Best Index Stocks

Stocks of the mutual funds and ETFs that track and follow the performance of a stock market index are termed as index stocks. Index stocks provide diversification to the investment portfolio by spreading out investments across different asset classes. They also manage...

Best Electric Car Stocks

Electric car stocks are stocks of the manufacturers of electric vehicles. The sales of electric cars started in 2013 and have demonstrated a steady rally in the past few years. The sales of battery-powered cars will not overpower traditional combustion engine cars...

Best Microchip Stocks

The stocks of companies involved in the design and fabrication of integrated circuits or microchips are termed as microchip stocks. With technology so prevalent in our lives, microchips are increasingly used to program logic and for computer memory to be used in...

Best Clean Energy Stocks

Clean energy stocks are stocks of companies that generate and supply energy through renewable and clean resources. The clean energy industry and stocks have seen an uplift in recent years with worldwide initiatives towards clean and alternative sources of energy. The...

Best Agriculture Stocks

Agriculture stocks are stocks of companies involved in agriculture and food-related businesses. The agriculture industry has been around for more than 14,000 years and is here to stay. Despite the economic conditions of the world, the performance of agriculture stocks...

Best Penny Stocks

Penny stocks are the stocks that, by definition, trade at less than $5 per share. They belong to small-cap public companies, are illiquid, and are traded on the over-the-counter exchanges and not the regular stock exchanges. Penny stocks are highly speculative in...

Best Stocks Under $50

Stocks that trade at under $50 per share are termed as stocks under $50. In most cases, stocks under $50 belong to large, well-established companies and are available at a good discount. Thus, stocks under $50 offer excellent opportunities for investors to enter the...

Best Gun Stocks

Gun stocks are stocks of companies that manufacture and sell firearms and ammunition, including guns and pistols. There are not many publicly-listed gun stocks in the US. Only two manufacturers of firearms are listed on the US stock exchange, while a few other gun...

Best Foreign Stocks

Stocks of companies located in a foreign land are called foreign stocks. With the rapid advancement in technology, investing in foreign stocks and securities has become a lot easier. An investor in the US can invest in stocks of companies in Zambia, India, or China...

Best Canadian Stocks

Stocks of companies based in Canada are termed as Canadian stocks. A wide variety of Canadian stocks trade on the US stock exchanges and they belong to a variety of sectors, and industries. After the legalization of cannabis in Canada in 2018, stocks of cannabis...

Best Railroad Stocks

Stocks of companies that are involved in the transport of industrial and commercial goods through the rail route are termed as railroad stocks. Railroad industry forms an integral part of the US economy; hence railroad stocks provide investors with the opportunity to...

Best International Stocks

Stocks of companies based in countries other than the home country of investors are called international stocks. There are many foreign stocks, from Canadian stocks to Indian stocks, and many of these trade on the US stock exchanges. They are registered in the US and...

Best Insurance Stocks

Insurance stocks are stocks of the insurance companies that deal in life insurance, property or casualty insurance, accident and health insurance, surety and title insurance, and insurance brokers. Insurance stocks have experienced a sudden rally and outperformed the...

Top ETF Lists

Best Performing ETFs

ETFs are the pools of money that invest in a variety of stocks, commodities, or a combination of assets. They follow the performance of benchmark indices like the S&P 500 and are traded on the leading exchanges. ETFs are effective modes of investment for investors...

Best Financial ETFs

Financial ETFs are the exchange-traded funds that invest in the stock of financial services companies. These companies include banks, insurance companies, mortgage companies, investment banks, brokerage firms, and companies that provide consumer credit. The...

Best Water ETFs

Water ETFs are the exchange-traded funds that invest in water stocks or stocks of companies involved in the water industry. This includes companies that perform water purification processes, bottle the purified water, and other related products. Water ETFs provide...

Best Semiconductor ETFs

Semiconductor ETFs are the exchange-traded funds that invest in companies that manufacture semiconductors. It includes the companies that directly make semiconductors as well as the ones that supply goods to these semiconductors manufacturers. The semiconductors...

Best High Yield ETFs

There are many types of ETFs, from financial ETFs to energy ETFs, so what sets apart high yield ETFs? High yield ETFs are the exchange-traded funds that invest either in stocks of companies that pay high dividends or in bonds of companies that pay high interest. The...

Best Gold ETFs

Gold ETFs are the exchange-traded funds that invest in gold and gold derivative contracts backed by gold. Investors do not get physical ownership of gold by investing in or redeeming gold ETFs; instead, they only get access to the cash equivalent of the transaction....

Best European ETFs

The exchange-traded funds that invest in the stocks of Europe-based companies are termed as European ETFs. These ETFs not only allow investors to broaden their exposure and geographical diversification, but they also help investors to aim at specific industries or...

Best Energy ETFs

The exchange-traded funds that invest in the securities of energy companies, including natural gas, oil, and alternative energy companies like those for electric cars. The exposure also consists of securities of the companies that produce and transport energy...

Best Defense ETFs

Defense ETFs track the performance of equities of companies in the aerospace and defense sector. These companies include the ones involved in the manufacturing, distribution, and transportation of aircraft and their parts, radar equipment, military aircraft, and other...

Best Blockchain ETFs

Blockchain ETFs are the exchange-traded funds that either track the price movement of bitcoin and other cryptocurrencies or invest in stocks of companies that use the blockchain technology to transform business applications. With the technological advancement and...

Best 3X ETFs

There are many types of ETFs out there. They range from financial ETFs to high yield ETFs, and then there are 3X ETFs. 3X ETFs are the triple leveraged ETFs. These ETFs are designed to amplify the returns of the benchmark indices by three times by using financial...

Best Oil ETFs

There is such a large variety of ETFs that you can invest in. There's financial ETFs and Energy ETFs to name just a few, and then there are Oil ETFs. Oil ETFs are the exchange-traded funds that invest in the stocks of oil companies. They are simple and effective...

Best Biotech ETFs

The exchange-traded funds that invest in the stocks of biotechnology companies are known as biotech ETFs. Biotech companies are mainly involved in revolutionary processes in the healthcare industry, including genetic engineering, molecular biology, and recombinant DNA...

Best Tech ETFs

Technology ETFs are the exchange-traded funds that hold assets including the technology stocks.  Some tech ETFs own all the stocks that are related to technology, while others have a niche focus by buying only semiconductor stocks or only cybersecurity stocks....

Best Small-Cap ETFs

Small-cap ETFs are the exchange-traded funds that invest in the stocks of companies with a market capitalization between $250 million and $3 billion. The portfolio is diversified with small-cap companies and stocks belonging to different sectors and separate...

Best Healthcare ETFs

Healthcare ETFs are the exchange-traded funds that invest in the stocks of healthcare companies. Healthcare is the second largest sector among the S&P 500 index and is an excellent avenue for investments. By investing in healthcare ETFs, investors get to invest in...

Best Fidelity ETFs

Fidelity, the market leader in investment planning and financial services, offers a wide array of 28 ETFs for investors to choose from. The exchange-traded funds of Fidelity help investors create a diversified portfolio of investments by catering to different factors,...

Best Dividend ETFs

A dividend is defined as a distribution of reward from the company's earnings to its shareholders. Investing in dividends is one of the slower and more patient approaches one may take when considering their investments. This type of investing belongs mostly to a more...

Best China ETFs

The exchange-traded funds that invest in the stocks of China-based companies constitute China ETFs. These funds include both index funds and funds specific to categories and sectors. China ETFs have become new avenues of investments in the past few years as China has...

Best Vanguard ETFs

Vanguard is the second-largest U.S. exchange-traded fund (ETF) sponsor by assets. In general, Vanguard is widely regarded as one of the most popular ETF-issuers in the world. According to estimates, Vanguard has around $5.3 trillion worth of assets under its...