When To Sell Stocks: 10 Best Sell Rules In The Current Stock Market (2024)

The current stock market's two-part turn — from "confirmed uptrend," to "uptrend under pressure," and finally to "market in correction" — is a clear message to investors to dust off their sell rules and be ready to use them.

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Knowing when to sell stocks requires as much study and experience as when to buy. And some of the harshest early lessons come while watching hard-earned gains — some of them significant — fizzle back to zero or even into a loss.

Best Sell Rules: First Do This

At the top of the sell rule list is the automatic sell rule. This says sell a stock that declines 7% to 8% below a correct buy point after clearing that buy point. The move reduces risk and assures your losses remain minimal, preserving capital for the next breakout.

When markets turn choppy or go into corrections, it is often a good idea to tighten the parameters on this rule up to 3% to 4%. Rotate into cash. Build a watch list. Wait for the market to turn.

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When To Sell Stocks: Know The Subtle Signals

IBD and investors.com articles spend a good deal of time discussing moving averages and support. These are not some sort of voodoo boundaries to which stock prices seem to somehow magically adhere.

Institutional investors — the funds, bank and insurance company portfolio managers who drive the market action — use these as guides for adding to or paring down holdings. This is why stocks often "find" or "rebound from" support at their 10-week moving averages.

But a stock dropping below its 10-week line in busy trade is signaling that its big-money backers have let go of the leash. On its own, such a move does not always mean "get out now." But it does hoist an important warning flag to watch out for other potential signs of weakness.

Those can include a breakout that reversesand heads back toward its buy point. In a late-stage base, any breakout that fails — particularly in an uptrend under pressure or market correction — can be considered a sell.

A drop through the 200-day line in heavy trade would be a sell signal. Also, leaders in the same industry group that begin breaking down should place an investor on notice to sell.

Current Stock Market: Selling Into Strength

Getting out of a stock that appears to be breaking down is one thing. But deciding when to sell stocks that have posted sizable gains can be more challenging, both technically and emotionally. After its first-quarter run-up, the current stock market is rife with stocks sitting atop healthy ruins.

The first and easiest upside sell rule is to take profits when a stock rises 20% after a breakout. Stocks tend to base, on average, at 20% intervals. This makes 20% a good place to lock in gains, before a new base begins.

Climax Top Signals

The remainder of rules governing when to sell stocks relate to those that have already had a strong run. These are often discussed in terms of a climax run, as a stock ramps up to the peak of its rally. None of these are hard-and-fast rules, like the No. 1 cut losses rule. But once they start to appear, they often come in twos or threes, sending clear signals that the stock rally's circ*mstances have changed.

Largest Daily Price Gain In The Rally: A stock should be extended and have climbed for months since its last breakout from a valid base. Watch for its largest single-session run-up of the entire rally.

Exhaustion Gap: A stock gets far extended from its most recent breakout and opens on a gap-up in price from the previous day's close.

Giant Stock Splits: A company announces a massive stock split (think 4-to-1, 7-to-1 or larger) after a significant stock rally.

Breaking The Upper Channel Line: A stock rises sharply above its upper channel line after significant gains. Determine an upper channel line by drawing a line across the three highest peaks over the past four to five months in the stock's rally.

Moon Shot Over The 200-day Moving Average: Prepare to sell if a stock rises more than 70% above its 200-day average.

Keep a list of these rules handy. Learning to act on them will increase your track record of positive sells, decrease your stress level and boost your returns.

Find Alan R. Elliott on Twitter @IBD_Aelliott

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When To Sell Stocks: 10 Best Sell Rules In The Current Stock Market (2024)

FAQs

What is the 10 rule in the stock market? ›

A: If you're buying individual stocks — and don't know about the 10% rule — you're asking for trouble. It's the one rough adage investors who survive bear markets know about. The rule is very simple. If you own an individual stock that falls 10% or more from what you paid, you sell.

When should you sell stock rules? ›

According to IBD founder William O'Neil's rule in "How to Make Money in Stocks," you should sell a stock when you are down 7% or 8% from your purchase price, no exceptions.

What is the 10am rule in the stock market? ›

Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour. For example, if a stock closed at $40 the previous day, opened at $42 the next, and reached $43 by 10 a.m., this would indicate that the stock is likely to remain above $42 by market close.

What is the best time to sell stock? ›

Always keep in mind the best time to sell the capital during the day at 10 am. Because of that time market open, and in the morning, many investors buy stock. 10 am is opening bell for the investor in the stock market. The best day for selling your stock is Friday because Saturday and Sunday market is closed.

What is the 10 stock ownership rule? ›

(B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) in the case of an obligation issued by a ...

What is the 10 rule of money? ›

Save for periodic expenses, such as car and home maintenance. Save 5%-10% of your net income. Accumulate at least 3 to 6 months' salary in an emergency fund. Make saving a habit, and never break it; always have a planned, written goal that you're saving toward.

What day of the week should I sell stocks? ›

Many traders and investors believe Friday is the best day to sell stocks.

Which stock to sell first? ›

Shares with the lowest cost basis are sold first, regardless of the holding period. Shares with a long-term holding period are sold first, beginning with those with the lowest cost basis. Then, shares with a short-term holding period are sold, beginning with those with the lowest cost basis.

Should you sell stocks when they are up or down? ›

Don't let a loss get to you — either mentally or financially. If you don't sell too early, you'll sell too late. To lock in solid gains, sell while your stock is still going up.

What is the 11am rule in trading? ›

The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day. This is particularly relevant for day traders who typically close out their positions before the market closes at 4 pm EST.

What is the 20 20 rule in stock trading? ›

In other words, the Rule of 20 suggests that markets may be fairly valued when the sum of the P/E ratio and the inflation rate equals 20. The stock market is deemed to be undervalued when the sum is below 20 and overvalued when the sum is above 20.

What is rule 1 in stock market? ›

Welcome to the Rule #1 Strategy, where we delve into the essence of successful investing through the principle of Rule #1: Avoid losing money. This foundational concept is akin to the Hippocratic oath in medicine, focusing on the importance of 'first do no harm.

How do I know when to sell stocks? ›

When to sell a stock: 7 good reasons
  1. You've found something better. ...
  2. You made a mistake. ...
  3. The company's business outlook has changed. ...
  4. Tax reasons. ...
  5. Rebalancing your portfolio. ...
  6. Valuation no longer reflects business reality. ...
  7. You need the money. ...
  8. The stock has gone up.
Apr 19, 2024

When should you sell stocks to take profit? ›

How long should you hold? Here's a specific rule to help boost your prospects for long-term stock investing success: Once your stock has broken out, take most of your profits when they reach 20% to 25%. If market conditions are choppy and decent gains are hard to come by, then you could exit the entire position.

What is the 3 5 7 rule in trading? ›

What is the 3 5 7 rule in trading? A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.

What is the 70 20 10 rule in stocks? ›

Part one of the rule said that in the next 12 months, the return you got on a stock was 70% determined by what the U.S. stock market did, 20% was determined by how the industry group did and 10% was based on how undervalued and successful the individual company was.

How does the 10 rule work? ›

What is the 10 rule? The ten percent rule of energy transfer states that each level in an ecosystem only gives 10% of its energy to the levels above it. This law explains much of the structural dynamics of ecosystems including why there are more organisms at the bottom of the ecosystem pyramid compared to the top.

What is the 10 10 10 rule in investing? ›

It is a simple rule that answers the following questions. What will be my thoughts 10 minutes later about the decisions that I make now? What will they be ten months later? And what will they be ten years later?

What is the 15 15 15 rule in stock market? ›

Meaning of the 15-15-15 rule in Mutual Funds

The Investment: You should invest Rs 15,000 per month. The Tenure: The total of your investment should be 15 years. It means that you will invest Rs 15,000 every month for the next 15 years. The Return: Your expected returns on your investment should be 15%

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