Learning when to sell stock is very difficult, and no one can get the practice down pat. This can be especially difficult when stocks are on the rise, as a trader will never be able to know with certainty exactly how high prices will rise before they turn around, and what signals that stock prices will drop in the future. Following is some advice on when to sell shares of stock during a bull market.
When to Sell Shares of Stock
The best time to unload stock is when it has gotten as high as it will get. Although selling higher than the price paid for shares always means positive returns (if the commission can be beaten), no one wants to sell too early, only to find that a security increases more after its shares were unloaded. So, generally, the best thing to do is to exit a trade as early as possible when the price seems to indicate a strong drop and trend reversal. This moment can be evidenced even before a security’s price drops, after stock price drops by a certain amount that seems to indicate that it will continue decreasing, or anywhere between during a bull market.
Bull Market in Investing
A bull market is a market where stock prices are on the rise, taking a bullish course. Because they are rising, investor optimism comes in, and keeps the positive trend going. Although not every security will necessarily follow the trend, overall, prices will be improving during the bull market.
Selling Stock in a Bull Market
There are several factors that can lead to the right sells during a bull market, in which stocks tend to rise. First, before any price change or drop, even as small as a pullback is seen, news, available for free at discount trade sites like E-Trade, and TD Ameritrade can help investors find times to exit trades.
If bad news affects top stocks, or commentators seem to think that rising prices may turn, they very easily can. Not only can such evidence successfully predict decreasing stock prices, but it can even cause prices to drop, as one of the main factors that maintains a bull market is investor sentiment, and if that can be affected, so can the rising course of stocks. If any news is enough to significantly scare traders, the course of the market can take a turn for the worse.
Stock Price Drops: When to Unload Stock After Turnaround
Another moment that can indicate a great time to exit a trade is when stock price drops. Although any drop in price can be a simple pullback, which is a time when value simply drops, sometimes without what seems to be any cause, and then often rises again, if this happens to several top stocks during a bull market, the trend can be turning. It is up to each investor to designate an amount by which a drop, to him or her, signals a continuing decrease in price. Trailing stop orders can be used to follow stock as high as it will go, and then sell once certain drops, which, to traders, mean continuing negative price movements, have been realized.
Also, a stock does not have to trade with the prevailing market trend. Just because many stocks are continuing a steady rise, a given security can still fall. If a stock turns while the others continue rising, looking into any news that could affect that specific company can help traders realize whether or not it will continue falling, even if the bull market continues overall.