How to Sell Stock - What to Look For When Selling

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Let's face it: We're living in an age where information is anything but in short supply. So when it comes to how to buy stocks, you can get your hands on plenty of investing info. But what about how to sell stock? Selling-it's just as important, but talked about less frequently than how to buy stocks.

You've probably heard one of Wall Street's favorite lines, "Buy low, sell high." Too often, investors get into trouble because they fall in love with their stocks. You see, even the most powerful growth stocks will peak and some point and fall out of favor. When that happens, that intense buying pressure we talked about before eases up and a stock's share price quickly fades.

I do not care how great a stock has been to you-once a stock's price reaches the tip of the iceberg, you have to sell and take your profits. Rule # 1: Do not let your emotions gets the better of you when investing. Remember: Buy low, sell high.

So what should you look for when selling a stock? Let me break it down for you:

1. Selling Pressure. Your first clue should be when large corporations begin closing out their positions and selling shares. Instead of buying pressure, a stock faces tremendous selling pressure. In most cases, the pressure is so intense that a stock's price will collapse to new lows very quickly. Try not to get caught up in this momentum. I've seen lots of investors panic in these instances and they wait too long to unload shares. Their profits are completely wiped out! I do not want to see that happen to you. When the selling pressure intensifies, that's the time to sell a stock. Do not hold onto it under the false pretense that it will turn back up. It will not.

2. Deteriorating Fundamentals. When a company is beginning to peak, the first to go is sales growth, followed closely by shrinking earnings. What causes this to happen? Often, when a company is Wall Street's flavor of the week, competitors scramble to meet-and surpass-the expectations that company is held to. So increasing competition causes profit margins to fall and the company begins to report earnings below analysts' expectations. As a result, analysts grow more cynical about the company's future earnings prospects and lower their forecasts. This should indicate to you that it's time to sell.

3. Overvaluation. Sometimes, for different reasons, a stock's price is much higher than the actual value of the company. It's like that saying, "You can not have too much of a good thing." Well, in the markets you can. When stocks get too hot, they get pushed way up past their true value-like, say, dot.com stocks-and when that happens, they're often set up for a severe fall-like the dot.com bubble-burst. Your safest bet is to sell stocks when they're overvalued before they collapse and then buy them back after a market correction pulls the price down to real levels. Of course, this strategy requires that you pay close attention to price tops and bottoms. This can be tedious, that's why I recommend sticking to my first two indicators-selling pressure and deteriorating fundamentals-and you'll be in good shape.

The decision to sell a stock is not easy, by any means. That's why I insist that you take the emotion and indecision out of the process. Now, this does not mean you'll always get them right. But if you focus on a few key indicators and let them demonstrate to you that it's time to sell a stock, ultimately, you'll be the richer for it!

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Source by Louis Navellier