How to Decide when to Sell a Stock

Knowing when to sell your stock is a difficult call to make. There are different factors that you will have to keep in mind before doing anything. Remember, when deciding to sell a stock, timing is everything. Get some guidance and understand the markets so that you know how much paid and the amount you will be making. Accepting a mistake or a bad investment and controlling your emotions are important elements for a trader. Try keeping those in check and the process will become a whole lot easier when the time comes to evaluate whether to sell a stock.


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    Setting a certain limit

    It is important to keep your ambitions in check. If the stock has done particularly great, where it has risen more than your expectations, it is better to sell the share right away. Chances are that your greed may backfire. On the contrary, try selling the stock if the price has fallen dramatically. While most will want to hang on in order to control or minimise losses, it is important to check the company fundamentals and future prospects before deciding on whether to stick on for a while.

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    Equity measures

    It is important to keep your emotions in check and perform some proper calculations. One of the basic measurements used by most analysts includes the Price to Earnings ratio which is the market value per share divided by the Earnings per Share. However, P/E is a basic tool which can lead to over or underestimation of a stock’s value.

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    Financial Ratios

    Taking into account the company’s financial ratios and putting a certain limit on them will allow you to sell your stocks on your own terms. If you feel that the company’s fundamentals have changed, then maybe it is time to move on. For instance if the current ratio which measures the asset a company has to pay off its liabilities has changed, it could be a fair indication for you to sell the stock. Other trends can also have an impact such as profit margins or debt to equity ratio etc.

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    Keeping an eye on new entrants

    If there is a new competitor in the market, it is important to check how the growth prospects of your company will be affected. Consider whether the company in which you have invested is taking any actions to fend off new players by introducing a new product line etc.

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