When to Sell: My Top Rules for Taking Profits

Hey Traders,

The other day, I got a question that doesn’t get asked enough: “When should I sell a stock?”

It’s a great question because most of the time, people are focused on what to buy, what to invest in, or what to trade. But knowing when to sell is just as important, if not more so.

I’ve been in the markets for nearly 40 years, and I’ve developed a few rules that have served me well when it comes to selling. Let me share them with you.

Rule #1: Sell on an Abnormal Pop

Take a look at Target (TGT) last week. That stock shot up $20 or more in a single day.

For a stock like TGT, which doesn’t typically move that much, that’s a huge and rare jump.

When you see something like that, it’s time to sell. It’s an abnormal pop, and those usually don’t last.

Remember, news can make a stock go up, but it usually can’t keep it up. Always take advantage of that good news by selling.

The best part of trading? Taking a profit.

Rule #2: Put a “Collar” on It

When I get into a trade, I’m usually in it for 2 to 10 days, sometimes longer if it’s a runaway winner.

If I hit a profit of 2, 5, or 10 bucks, I’m out. That’s a nice return.

You can use a mechanical approach if you’re trading shares (not options):

Set a stop loss order 7% below your purchase price and a profit target order 10% above. I call this a putting a “collar” on a trade.

You can even put both orders in at the same time. That’s called an OCO order, or “one cancels other” order.

Doing it like that makes it so you don’t have to be glued to the screen all day.

Rule #3: If It’s Not Moving, Sell It

If you buy shares because it’s in a trend and it’s not gaining traction in the first three days, sell it.

Even if it’s down a bit in those first few days, but still hasn’t hit that 7% stop loss yet, sell it.

If you own shares, the stock has to be moving in your direction, or it’s not worth holding.

Summing It All Up

These are just the rules I’ve come up with over nearly 40 years in the markets.

And keep in mind, these rules are for when you are trading shares.

If you’re doing another strategy, like the covered calls, naked puts or spreads I’ve talked to you about in the past, you’re not necessarily going to want to use these rules. Or you might need to modify them.

The point is to take your profits when the market gives them to you. Don’t wait around hoping for more when you’ve already got a win.

The best part about trading is taking profits. Stick to these rules, and you’ll find yourself taking more of them.

Trade well,

Jack Carter
P.S. Before you can sell a stock, you need to know which ones are in the best trend and have the best chances of continuing to go up. That’s where my latest tool comes in. (it might just replace me one day!)

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