When to Sell Stocks

 

The “when to sell stocks” question must be one of the hardest question to answer. One way to answer is that it depends on the Investor and his risk aversion. As an Investor, you will often encounter a situation where you have sold too early or you held a stock way longer than you should. If we follow the “hope for the best, prepare for the worst” quote, the best way to answer this question would be to create a worst-case scenario for each security that you hold and create stop orders or trailing-stop orders. By doing this, you can construct a trading mechanism where the system will automatically sell your securities that that are at a loss. You will then incur a loss that resides within your risk aversion and have stocks that are in the green.

Here is a table that you can use as a template to create precise stop orders.

Ticker Symbol Allocation Fund Allocation Current Price Approx. quantity

I should order

Willingness to Lose Stop Price Loss Per Share
ABC 5% $50,000 $50.12 997 –          $5,000 45.15 -4.97
DEF 25% $250,000 $241.22 1036 –          $5,000 236.49 -4.73
GHI 25% $250,000 $61.13 4089 –          $5,000 59.91 -1.22
JKL 7% $66,666.67 $150.24 443.73 –          $5,000 138.97 -11.27
MNO 7% $66,666.67 $120.25 554 –          $5,000 111.31 -8.94
PQR 7% $66,666.67 $19.54 3411 –          $5,000 18.07 -1.47
STU 7% $66,666.67 $963.05 69 –          $5,000 893.72 -69.33
VWX 7% $66,666.67 $111.99 595 –          $5,000 103.64 -8.35
Total 90% 883,333.35 –          $40,000

 

Alternatively, you can always use trailing stop orders (%), where the order will automatically be sent to the market when the price goes lower than the percentage you have specified in your order. Here is a video that will provide more details on what is a trailing stop order: