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Proven Methods for Selling Stocks

· Stocks

Since the stock market is filled with uncertainty, investors find it challenging to determine when to sell their stocks. Furthermore, most traders struggle with the difficulty of separating their trades from their emotions. For instance, most investors won’t sell a stock that has risen to 20% because they don’t want to miss out on further gains when it shoots to the moon. If the stock falls by 20%, they still won’t sell it because they might regret their decision once the stock rebounds significantly.

However, the key to becoming a successful trader is to manage the two major human emotions that typically influence their decision to sell stocks – greed and fear of regret. In other words, wise trading decisions require the mastery of these emotions. To help you make the process of selling stocks as mechanical as it can be, check out these proven methods:

Valuation-Level Sell

This strategy involves selling a stock that hits a specific range or valuation target. The valuation metrics that are commonly used by most investors include price-to-book (P/B), price-to-sales (P/S) and price-to-earnings (P/E) ratio.

In case you’re wondering, companies usually employ the price-to-book ratio when they need to compare a particular firm’s market to book value. They do this by dividing the price per share by book value per share. An asset’s carrying value that’s reflected in the balance sheet is equivalent to its book value. Typically, companies calculate it by netting the asset against its accumulated depreciation.

Moreover, the price-to-sales ratio is a valuation ratio that’s used as a basis when a comparison is made between a company’s revenues to its stock price. You can get a clear idea about the value placed on each dollar of a company’s revenues by looking at the price-to-sales ratio.

Lastly, the price-to-earnings ratio is commonly used by both analysts and investors when they want to know the value of a company’s shares relative to its per-share earnings. When the P/E value is high, this implies that higher growth is expected in the future. If the company is losing money, it doesn’t have a P/E ratio.

To help you understand the concept of the valuation-sell method, let’s pretend that an investor holds stock in a company when its P/E ratio was 13 times earnings. The trader considers the historical valuation of the company’s stock and discovers that the average P/E is 15.8 within a period of 5 years. This information enables the trader to form a reasonable hypothesis and a decision to sell the investment.

Target-Price Sell

This method involves the use of specific stock value in order to trigger a sell. Investors who don’t like using percentages turn to this method when they sell a stock. Moreover, investors use common target prices based on valuation model outputs. The discounted cash flow model is an example of these outputs.

Down-From-Cost and Up-From-Cost Sell

The down-from-cost sell strategy triggers a sell that’s based on the amount that you’re willing to lose. For instance, an investor who buys a stock may decide to sell it when the stock falls 10% from where he purchased it. On the other hand, a stock sale is triggered by the up-from-cost strategy if the stock grows a certain percentage. The stock’s historical volatility, as well as the amount that you’re willing to lose, are the two main factors that determine the appropriate percentage that will trigger the sell.

Opportunity-Cost Sell

This strategy is applied when an investor who owns a portfolio of stocks sells a stock as soon as a good opportunity presents itself. Furthermore, this requires a great deal of research, monitoring, and analysis on the investor’s portfolio as well as potential new stock additions.

Deteriorating-Fundamentals Sell

This approach can trigger a stock sale if some fundamentals in a company’s financial statements fall below a particular level. For instance, an investor a certain investor who owns a stock of a company that pays a high and consistent dividend decides to hold the stock because of its safety and dividend yield. Moreover, when the investor purchased the stock, its debt-to-ratio was at 1.0 and its current ratio was at 1.4. The deteriorating-fundamentals sell strategy can prompt the investor to sell the stock once its debt/equity ratio rises over 1.50 or if the current ratio falls below 1.0.

Do You Want to Learn from the Experts?

One of the toughest things that any investor would have to face is accepting a loss on their investment. Selling stocks at the right time is what makes these investors successful. If you want to learn more about the proven methods for selling stocks, feel free to reach out to the experts at Gorilla Trades today. We’ve established ourselves as the complete solution for today’s modern investor and a trusted resource for them as well.

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