Finance

How to decide when to sell a stock

If you are involved in stock transactions you have probably had your highs and lows. This guide will attempt to devise some strategy on how to decide when to sell a stock. Although the market may seem complicated it can be reduced to these two fundamental actions: investing by buying shares and selling shares. The timing can be crucial when it comes to investing in shares. Before you start any selling frenzy please check the following list:

•  First of all see if your selling will affect the taxes you have to pay. Sometimes it can be more profitable to simply keep the shares due to the prohibiting capital gain taxation.

•  Evaluate the market in which the company you invested in covers. Sometimes you can easily foretell a share's development by seeing if new, major players have entered the market or if the company you invested in developed some new ground-breaking product.

•  Do not rely simply on the evolution of the stock itself to make a choice. Analyze the performance of the company itself. Even if the price went down, a strong, healthy company will almost surely recover. Investing in shares is not made by simply analyzing the stock price. Always try to dig deeper.

•  Think about the prospects of the company you own shares to. If their product line hasn't changed in a long time and they don't have a well established product development department sell without thinking twice. Usually this type of company has a stagnant course for very long periods with a tendency to drop. Investing in shares like these is a waste of time and money.

•  If the shares you invested in have hit an all time high beyond the expectations of the experts they are probably overrated. Selling these shares is a sound strategy. They are the payment for your wise action of investing in shares with good prospects.

•  It is very common among stock players to involve emotionally in their investing. Don't do that. Don't hang on some shares that constantly drop. Use all the expertise available and always try to make an objective choice. Passion and emotions have no place in the stock exchange. They can make you lose money really quick.

•  If you plan having a successful career in this field try picking a strategy for selling shares and stick to it. Establish sale points, make a habit of deeply analyzing the shares you've already bought and be ready to sell your shares at any moment. One way to establish a buying and selling strategy is to use technical analysis - another term for share price charts. An example would be if a company has been range trading for many months (between two sets of prices - a high and a low point) and falls below the support (the lower price point and closes below for more than one session, it could signal an exit point. The company may be establishing a new but lower trading range. If you do apply such criteria, you have to be very methodical and strict.

•  Another very good strategy to use when selling shares is to use percentage drops for exit points (the same principal can be used to take profits). One generally accepted level is 10%. If the stock drops 10% below the entry point, you should sell the stock. This ensures you do not get too psychologically attached in the stock and allow you to maintain much of your investing capital.