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When to Sell Stocks
In swing trading, beginners always jump on a trade without any plan whereas an experienced trader knows that entering a trade is only half of the equation of a winning trade.
You must know when to sell if you want to make money swing trading. There are two cases where you want to sell your stock after entering a trade.
Stop Loss - When the stock drops and you must take a loss and exit the trade
Profit Taking - When the stock goes up and you need to take profit
When a stock drops to a certain price, you must take a loss and exit the trade:
This case is simple, you set a stop loss and exit the trade when it hits your stop loss. Stop loss percentage is really a personal preference. Some traders are willing to risk more while others want to keep their loss at a minimum.
Of course, the more risk you put in, the more reward you should expect to gain from any stock you invested in. If that’s not the case, then you should not buy the stock in the first place. However, it is not recommended that you have a stop loss over 10% in swing trading.
You must learn not to fall in love with any stock if you are planning to stay in the trading business for long. If you are investing, then it is different because often you would want to have a bigger stop loss if you are confident that the stock will go up in the long term. Double down is actually a pretty good strategy for long term investors, but you should never double down in swing trading.
When the stock goes up, you need to take profit
There are many different ways that trader use to sell a stock and take profit. Here are a few selling strategies for swing traders.
Sell when the stock price hit your target
Many swing traders set a target price when they enter a trade, it can be anywhere from 0.5% to 20% depends on how aggressive the trader is and the size of their portfolios.
Sell when the stock price reaches upper Bollinger Band
- Some technical traders use Bollinger Band as buying and selling signals. When stock prices cross above the lower Bollinger Band, they buy it. They sell the stocks when their price crossover the upper Bollinger Band.
Let’s look at the chart example for POT.
The blue curves are the upper and lower Bollinger Bands, and we see 3 buys and 3 sells on this chart.
Sell when technical indicator moves into overbought area
Many traders trigger their sell signal when technical indicators move into overbought area. For example, traders sell their stock when RSI move above 70 or stochastic move above 80. Let’s look at the same stock POT using stochastic. It also has 4 buys and 4 sells.
Let Profits Run
- While approach 1, 2 and 3 are good for profit taking, they miss out huge opportunities when a trend is strong enough that a stock keeps going higher. This is the approach that I am currently using. I only sell it when I believe a trend is running out and a pull back is likely or when a stock hit my stop loss.
- Let’s look at the following example, ANN stock chart.
If we used Bollinger Band or Stochastic Overbought as our selling signals, we would miss additional gains on the stock.
Trading Software for Buy and Sell Signals
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