Often when it comes to discussing investment in the stock market, a major priority is given to buying stocks by investors. If you have been practicing this, it can turn out to be a major mistake in your investment journey, as money in an investment is made when you sell the right stocks at the right time. Having the right selling practice can help you claim your profits, and in some cases, you can seamlessly cut your losses. Do you want to explore more on the best ways How to Sell Stock? Then stay with us, we will be discussing more on the methods and tips on selling stocks conveniently.
Due to the volatile market, choosing the right to sell a stock can be nerve-wracking. For most investors, it is very difficult to separate their emotions from trading, and two strong emotions that impact the journey of trading or investing include fear and greed. Managing these emotions remains to be a key factor in maximizing your profits with the stocks.
For instance, many investors wouldn’t sell stocks when they have risen to 10%-20% because they sit with the hope that stocks have the potential for better raises so that they can grab on the opportunity. This occurs due to greed within investors and the desire to gain more profits with rising stock prices. On the contrary, if the stock declines 10% or 20% even then investors won’t sell the stock due to reluctance of realizing loss in such circumstances.
So what is the right time to sell your stock? How to sell stock correctly and what happens when you sell a stock? We understand your concerns, fortunately, there are a few proven best ways to sell stocks that you can benefit from.
Let us walk you through different aspects of selling stocks to simplify your trading journey whether you are a beginner or expert.
- Beginners guide for how to sell stocks
- 5 best way to sell stocks
- When should I sell my stocks?
- Bottom Line
Beginners Guide for How to Sell Stocks
There are a few methods that can help you outline your trading journey by separating emotions and avoiding experiencing massive stock failures. Though, often beginners find it difficult to decide when and how to sell stocks, and plan out the right strategy. We’ve got you covered! Keep reading to discover the best way to sell stocks.
Deciding the Right Time to Sell Your Stocks
When to sell stocks depends on your investment strategy, timeline to acquire financial goals and risk tolerance for stock investments.
As we discussed earlier, loss aversion and fear can come along your trading journey. While reasons to sell stocks can vary for investors, there could be good and bad. It is always to check on your emotions when you consider selling stocks to other investors.
The list of good reasons for selling stocks can include, the ongoing poor performance of stock relative to the competition, irresponsible leadership as an investor, or management decisions that you don't support anymore. Or you have decided that your wealth can grow with other stocks or other investment instruments.
On the other hand, a bad reason could include impulsive incorrect decisions or reactions to short-term stock market price swings or news of a one-off company. Exiting when stocks are into downfall can lock you into major losses, which is the exact opposite of what you expect.
Before you sell a stock, think about the reason why you bought the stock in the first place. Ask yourself, did you consider the fact of what happens when you sell stock? Analyze your reasoning to ensure you don't respond impulsively to your emotion to sell your stocks.
We will be discussing more about the reasons and when you should sell your stocks, later in this blog. Stay with us!
Determine your Ideal Order Type
If you are well-versed with the factors of buying stocks, it means you know about selling stocks as the order type remains the same for both processes. Though, the distinct factor for selling stocks would be your goal - here you will use order type to limit your cost of purchasing stocks. Upon sale, your priority must be limiting your losses, and maximizing profit or returns.
Let’s have a closer look at the order type with selling stocks below in the chart.
| Order Type | Crux of Order type | Right time for utilization |
| Limit Order | Putting a request to buy or sell stock at a specific time | You are okay with keeping stock if you can't sell stock at or above price you expect |
| Market order | Putting a request to buy or sell stock immediately at best available stock price | You wish to unload stock at any given price |
| Stop- limit Order | This is a combination of stop limit and order. This order type is executed only when your stock drops to stock price, only if you can sell on or above your limit price | When you stock drops to certain, but only if you can sell your stock to minimum price |
| Stop (stop-loss) Order | A market order is executed only if stock reaches the price you have set. | When you stock drops to or your below a certain price |
Sounds confusing? Let’s delve deeper with more examples, let’s imagine you own a stock with a market price of $40.
Limit Order
You will set a limit price and the order will execute only if the stock is trading around the limit or above the price. If you set a stock limit order of $41, then the order will execute when the stock price is $41 or above.
Risk factor: You would end up not selling the stock if the stock price does not rise above your limit order
Market Order
This order executes within a few seconds at the market price. You may sell your stock at $40, slightly more or less. While stock prices may fluctuate in time to place and execute orders.
Risk factor: Your stock can sell at any price without any restrictions
Stop-limit Order
You will set a stop limit and order price. Let's say, if your stop price is $39 and the limit price is $37 then your order will execute at or above $37 if the bid for stock price drops to $39.
Risk factor: You may not sell the stock at all if the stock stops below the limit order and order price which is common in a volatile market.
Stop-loss Order
You would set a stop price and your order will execute only if your stock trades at or below that price. If you have set the stop price as $38, then your order will execute as market order if the stock price falls to $38 or below.
Risk factor: You could end up selling stock lesser than the stop price that you had set, there's no floor. Also, a sudden or temporary drop in stock price can lead to immediate sales if you don't want to.
Consider Filling Out a Trade Ticket
Let’s assume you are selling stocks through a broker, brokerage account, or trading platform that will ask you to have a trade ticket or order by filling out a form to initiate a sale. In most cases, trades will settle at most brokers, which means the cash acquired through selling the stock will land in your account within 2 business days after the date of order execution.
Though, filling out the form for a trading ticket is a quick process. To initiate the process, select the sell, plug into the symbol of your preferred stock, select the number of shares, and your order type and order limit or stop if it is applicable. Lastly, select a time in force or order expiration, which determines how long an order should be open.
However, time-in-force will depend on your order type. We are listing a few common options below.
Day:
Your trade will be canceled, and the order will expire if the form is not filled before the market closes, this is done by default.
Immediate or cancellation:
A few orders must be filled immediately, or else the order or any portion of the order which is not filled, will be canceled.
Good-Til-Canceled:
The trade will stay active until it is filled or canceled by investors, though brokers make sure to set a time limit on how long an investor can keep a GTC order open.
Fill or kill:
This is usually utilized while trading massive numbers of shares. If investors fail to fill the entire order together the order will be canceled.
On the open:
Investors will fill in at the opening of the market.
On the Close:
Investors will fill at the close of the market.
If you are a beginner, it is okay to leave the default day selection day in place. When you get comfortable with trading stocks, you can think of exploring more options. Once you have filled all the fields give a read to the whole ticket before you submit. Double-checking your forms is also advisable as you don't want to sell out your hero stock instead of selling a side character.
5 Best Way to Sell Stocks
Selling stocks can get tricky at times for investors, don’t worry we have a few methods to simplify your trading journey via outlining the 5 best ways to sell stocks ( a few proven methods) which can come to your rescue.
Valuation- Level
One of the selling categories is termed as Valuation Level method in the world of selling stocks. In this strategy, investors tend to sell the stock once it hits a certain level of valuation target or range.
Though you can use various metrics to sell your stocks, one of the most preferred options includes the price-to-earnings (PE) ratio, price-to-book (PB) ratio, or price-to-sales (PS) ratio. These metrics are common among investors who aim to buy undervalued stocks, and they can be utilized to sell the stocks by investors when stocks become overvalued.
Target-price
This method uses a specific stock value to trigger stock sales. Investors sell a stock, verified by the popularity of stop-loss orders with investors and traders. The most-preferred target price used by investors typically relies on valuation model outputs like discounted cash flow models.
However, many traders base their target price based on arbitrary round numbers and support and resistance level. Though, these models are less popular than other fundamental models.
Down from Cost and Up from Cost Sell
Down from cost is another reliable robust rule-based stock selling method that aims on facilitating an amount usually expressed in a percentage that an investor is willing to lose. For instance, when an investor buys a stock they may decide even if this stock falls by about 10% from the price they bought, they would still consider selling it.
Similar to down from cost, up from cost strategy triggered a stock sale when a stock rises by a certain percentage. However, both strategies are catered to protecting the investor’s principal by either limiting the stop-loss or locking a specific amount of profit. The key to this strategy is selecting accurate percentage leads to sell by determining the stock’s past volatility and the amount that an investor can lose.
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Opportunity Cost
Using this method, an investor will have a portfolio of stocks and would sell the stock when they find an accurate opportunity to rise. Though, this would require thorough research, consistent monitoring, and analysis of the portfolio and additions of new stocks in the stock market.
Once a better opportunity occurs, investors would then reduce or eliminate the position of the current holding of the stock which isn’t required as per the new stock risk adjustment return basis.
Deteriorating Fundamental
This method triggers a stock sale when fundamentals in a company’s financial statements fall below a particular level. Though, this method is similar to the opportunity cost method in terms of stock sold using the previous strategy.
Many traders focus on balance sheet statements while making a stock-selling decision using this method. Also, additional emphasis is given to the coverage ratio and liquidity of the company. For instance, let’s assume an investor owns a stock of a utility company that pays a high and consistent dividend.
Now, the investor is holding stock because of having safe dividends and high dividend yield options. When an investor bought the stock its debt-to-equity ratio was 1.0 and the current ratio was 1.4. As per the established trading rule, an investor could sell the stock if the debt to equity rises over 1.50 or when the current ratio falls below 1.0.
When is the Right Time to Sell Stocks?
Often traders and investors have concerns like when is the right time to sell a stock? Or can you sell a stock at any time? Like buying a stock at the right time and a few factors to achieve maximum profits, similarly selling stock would require correct judgment to sell at the right time. We are listing below a few reasons for you to understand when to sell your stock.
Quick Gains
Often investors sell stocks to acquire handsome gains. Though, selling a stock only because it has risen suddenly in price is not an ideal option. Though, the price gains can be justified by the company's fundamentals or due to short squeezes or sometimes rumors.
In such circumstances, investors must conduct research to find the right reason for the stock gains, and accordingly either sell full-position or half-position stock.
Company and Market news
Market reaction to negative news from a company, such as an earnings miss leads to swift stock fluctuation. In such a situation, an investor determines whether the deterioration in the stock’s fundamentals is temporary or permanent. Problems that impact a specific sector may be highlighted when a leading company in that sector reports on missing opportunities for earning. If investors own stock in a company in that specific sector, they would consider selling it.
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Bottom Line
Accepting your loss in stock investment while selling those stocks is one of the most difficult aspects for investors. The winning factor to achieve success in stock isn't buying potential and high-return stocks but selling the stocks at the right time. The methods, techniques, and tips outlined in the map will help you strategize your investment.
Frequently Asked Question
When an investor sells a stock, they usually offload ownership of the stock to another investor in exchange for money or other forms of assets. The gain or loss made via selling the stock will rely on the gap between the selling price and the price investors had bought the stock initially. The profit or loss for selling a stock depends on whether the stock's value has increased or declined since the time of your stock purchase.
Yes, investors can sell stock anytime, there isn’t any regulation or limitation, make sure you consider selling within market hours. Apart from that, you will have to conduct research and utilize a few methods discussed in the blog to ensure you maximize profit from your owned stocks by selling at the right time.
