If you have a winning stock in hand, you might think about this question: How long should I hold the stock? Could this one become an exceptional moneymaker? Indeed, there's no easy answer to the resolving the issue of when to sell stocks.
X
Numerous factors matter. One, it depends a lot on what point you began to invest in the market cycle. A bull market tends to last two to four years. The big money tends to be made in the first year or two.
In most cases, profits should be taken when a stock rises 20% to 25% past a proper buy point. Then there are times to hold out longer, like when a stock jumps more than 20% from a breakout point in three weeks or less. These fast movers should be held for at least eight weeks.
After those eight weeks pass, the next step is to study the stock's chart and see if it is holding up well. If so, and the market is rising, chances are good the uptrend will continue. You hold. Later on, a new breakout may send shares even higher.
IBD Newsletters
Get exclusive IBD analysis and actionable news daily.
IBD Newsletters
Get exclusive IBD analysis and actionable news daily.
Get these newsletters delivered to your inbox & more info about our products & services. Privacy Policy & Terms of Use
Thank You!
You will now receive IBD Newsletters
Something Went Wrong!
Please contact customer service
For true market leaders, the typical time from a breakout price to peak ranges from 12 to 18 months.
But when you truly have something special in your hands, you have to give it even more room to bloom.
"If you really know and understand a company thoroughly and its products well, you'll have the crucial additional confidence required to sit tight through several inevitable but normal corrections," William O'Neil, longtime chair and founder of IBD, wrote in "How To Make Money In Stocks."
When To Sell Stocks: The Art Of Holding
In the 1923 classic "Reminiscences of a Stock Operator," author Edwin Lefevre profiles the extraordinary trader of the early 20th century, Jesse Livermore. Lefevre quotes Livermore as saying, "After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that the made the big money for me. It always was my sitting. Got that? My sitting tight!"
"I have repeated the mistake of grabbing at small profits and selling at a targeted round number over and over in my speculative career," wrote Victor Niederhoffer, a futures expert and former currencies trader for the former hedge fund titan George Soros, in the 1997 autobiography "The Education of a Speculator."
"I believe many others make this same error.The reason: Many players set their sights at certain reasonable targets. Fast-moving operators, aware of these targets, come in just ahead, ready to take the other side, knowing that there will be considerable pressure to offset at prices not much worse than current. This pressure usually drives the price away from the target. But if the price can overcome these operators and reach the target, something big is about to happen," Niederhoffer added.
Staying with a stock for some time will allow gains to compound, especially if you can locate follow-on entry points and add shares when it breaks out anew.
In a general bull market, winners may be held for years. One of O'Neil's huge winners, Pic N Save (now known as Big Lots (BIG)), was held for more than six years.
Two Giant Winners In Tech Land
Microsoft (MSFT) was a gigantic winner from the late 1980s through the late 1990s. With its dominant position in operating systems and productivity software, its stock skyrocketed from a split-adjusted breakout near 90 cents in September 1989 to its high of 119.94 in December 1999.
Cisco Systems (CSCO) soared 75,000% from an initial buy point in late 1990 before finally topping in March 2000. The networking titan had huge earnings and sales gains as well as juicy profit margins and a high return on equity.
Both Microsoft and Cisco Systems were among the best at what they did. Both companies also benefited greatly from the tech and internet boom.
Returning To Leadership In The Restaurant Sector
Chipotle Mexican Grill (CMG) was a big market winner after the stock market bottomed in March 2009. After the 2007 to 2008 bear market, the stock bottomed before the market did so in March 2009. The stock later broke out to 52-week highs in January 2010 and ran up 348% before topping in April 2012. It built a series of bases along the way.
The firm delivered quarter after quarter of double-digit earnings and sales gains, thanks to its simple menu of fresh, higher-quality ingredients.
When did the stock show a major sell signal?
In late July 2015, Chipotle broke out of a long saucer base. It had one major flaw: Most of it formed beneath the 10-week moving average. Gains were scrawny after Chipotle moved past a 728.07 entry, exceeding no more than 4%.
Learn Key Sell Rules
Starting with the week ended Oct. 16, 2015, the restaurant play slumped six weeks in a row, falling in heavy volume and crashing through its 10-week moving average and then taking out its 40-week line — two critical sell signals. (Go to a historical MarketSmith chart to see this specific time frame.)
Those who sold on any of those signals would have saved a lot of money; Chipotle went on to battle its worst PR crisis as customers across the country got sickened by tainted ingredients throughout the second half of the year.
A new strong breakout didn't emerge until January of 2019.
A version of this story first appeared in the March 20, 2013, edition of IBD.Please follow Chung on Twitter at @SaitoChung and @IBD_DChung for more on growth stocks, buy points, breakouts, chart analysis and stock market analysis.
As a stock price rises, investors can begin selling the position once it reaches the price target range. Investors can either sell it all at the price target or ease out of the position over time at various price targets.
When the stock market is in free fall, holding cash helps you avoid further losses. Even if the stock market doesn't drop on a particular day, there is always the potential that it could have fallen—or will tomorrow. This possibility is known as systematic risk, and it can be completely avoided by holding cash.
If you see any giant stock of any good company in a 10 years frame, you will see it has generated good returns in the long term. Though there is no ideal time for holding stock, you should stay invested for at least 1-1.5 years.
Market orders are optimal when the primary goal is to execute the trade immediately. A market order is generally appropriate when you think a stock is priced right, when you are sure you want a fill on your order, or when you want an immediate execution.
An investor may also continue to hold if the stock pays a healthy dividend. Generally though, if the stock breaks a technical marker or the company is not performing well, it is better to sell at a small loss than to let the position tie up your money and potentially fall even further.
It's best to wait and observe what happens. You also don't want to sell stock just because the price went down. Your goal is to always buy low and sell high; if you sell your stock every time the price takes a dip, you're doing the opposite. You may have also heard of a term called tax loss harvesting.
At the same time as the market is adjusting its expectations for the Fed, we're seeing that earnings have unmistakably inflected and are now coming down. Based on how earning estimates have been progressing, 2023 is increasingly looking like it could be a ‒10% earnings year.
The average 70-year-old would most likely benefit from investing in Treasury securities, dividend-paying stocks, and annuities. All of these options offer relatively low risk.
The stock market rallied modestly in the first two and a half months of 2023, but that has not been enough to make up for an abysmal 2022 during which the S&P 500 index plunged by nearly 19%.
There's an adage among traders: Let your winners run. If you don't want to sell your winners prematurely, it might make more sense to generate the necessary income by selling your losers—which may allow you to offset up to $3,000 a year in ordinary income in the process.
To correctly arrive at your net capital gain or loss, capital gains and losses are classified as long-term or short-term. Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
Market makers do take the opposite side of a trade, and they may act as a buyer if you are a seller or vice versa. Some firms that offer brokerage services are also market makers. Market makers are there to help facilitate trade so there are buyers and sellers in stocks listed on the major exchanges.
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”
One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1). For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade.
A wide stop-loss tends to work best for swing trading, or mid-to-long-term trades, as the trade has more time to move in your favour before the stop-loss is hit. A tight stop-loss is better suited for day trading or short-term trades, as the trade has less time to move in your favour before the stop-loss is hit.
The week leading up to the end of the month is often used by portfolio managers to “dress up” their portfolios by buying more of the stocks in their portfolio that have performed well. This tends to drive the prices of those well-performing stocks even higher near the month-end.
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.
When things are looking bleak, consider holding on to your investments. Selling during market lows can be one of the worst things you can do for your portfolio — it locks in losses. When the market evens out down the road, rebalancing may be in order.
The wash-sale rule prohibits selling an investment for a loss and replacing it with the same or a "substantially identical" investment 30 days before or after the sale. If you do have a wash sale, the IRS will not allow you to write off the investment loss which could make your taxes for the year higher than you hoped.
One of Wall Street's most vocal bears expects the stock market to fully recover its losses and trade to record highs in 2024. "This is not the end of the world. This is not 2008. There's not going to be a financial crisis," Morgan Stanley's Mike Wilson told CNBC on Tuesday.
Most of our experts agree that one of the safest places to keep your money is in a savings account insured by the Federal Deposit Insurance Corporation (FDIC). “High-yield savings accounts are an excellent option for those looking to keep their retirement savings safe.
After ending the year down nearly 20%, the S&P 500 index is in the green for 2023. And the Nasdaq Composite — which plunged 33% in 2022 — is up more than 4.5% this year. So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023.
Hold on to the shares you believe are “clearly” good and sell the losing shares, regardless of their past performance. The cost price is irrelevant when deciding what to do with a losing stock in your portfolio. If you wouldn't buy more of a losing stock, sell it. Don't put off until you break even.
Any profit you make from selling a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year. If you held the shares for a year or less, you'll be taxed at your ordinary tax rate.
Corporations may be private or public, and may or may not have publicly traded stock. They may raise funds to finance their operations or new investments by raising capital through selling stock or issuing bonds. Those who buy the stock become the firm's owners, or shareholders.
When you sell your stocks, you'll need to quote a bid price – the minimum amount you're willing to accept for your shares. If a buyer is willing to pay that price, your market order to sell will be filled, and the shares exchanged. Most of the time, these buyers are institutions like banks and hedge funds.
They often move in and out of the stock market at the worst possible times, missing out on annual returns. Most financial advisors will tell you that you should invest only money that you won't need for at least five years. That way, you have time to ride out market ups and downs and still make money.
A trading rule known as the 10 a.m. rule states that you should never purchase or sell equities at that time. This is because prices can change drastically in a short amount of time during that period of time, when the market is typically quite volatile.
Having earned a profit from an investment can further justify selling the stock to pay for a major purchase, your living expenses in retirement, or as part of your portfolio allocation strategy. But don't sell a stock for profit just because the price increased.
The fifty percent principle is a rule of thumb that anticipates the size of a technical correction. The fifty percent principle states that when a stock or other asset begins to fall after a period of rapid gains, it will lose at least 50% of its most recent gains before the price begins advancing again.
The relationship can be referred to as the “Rule of 21,” which says that the sum of the P/E ratio and CPI inflation should equal 21. It's not a perfect relationship, but holds true generally.
This rule is one of the most basic rules that help an investor become a crorepati. It says that if you invest Rs 15,000 a month for a period of 15 years in a stock that is capable of offering 15% interest on an annual basis, then you will amass an amount of Rs 1,00,27,601 at the end of 15 years.
By following a 3-to-1 ratio of gainers to losers, if you have a 25% gain, you can allow up to an 8% loss, and no more. If in an unfavorable market and your winners are only up 10% to 15%, you need to cut losses sooner.
Widely used during the global financial crisis of 2007–2008 and the Great Recession that followed, the phrase was also often used to describe companies which could avoid share issues or bankruptcy. Commercial establishments that accept only cash payments have become suspect in the modern age.
Layoffs in tech and finance will spread to other sectors. After tech and finance, more sectors will have to adapt to a new reality of high interest rates and weak demand.
According to McKinsey report published in 2009, recession-resistant industries include consumer staples, healthcare, telecommunication services, and utilities, among more. In 2008, the total returns to shareholders fell for all sectors by over 20%, but consumer staples was an exception to this.
Introduction: My name is Duane Harber, I am a modern, clever, handsome, fair, agreeable, inexpensive, beautiful person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
