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It feels great when you pick a stock that performs well. However, you wouldn’t want to miss the ball at the 1-yard line. When you score a touchdown, you want to capture every bit of the associated gains. Today, I want to discuss how to scale back a position that has worked in your favor—a method to lock in the profits you’ve successfully earned. Even when the market is moving perfectly in your favor, you need a clear sell rule.

There are three key points at which you should strongly consider selling part of your position after a stock has risen significantly from its initial buying point:

• When you achieve a 20–25% profit range.

• When the stock extends 10–15% above its 10-day moving average.

• When it breaks above the 10-day or 21-day moving average lines.

Sell Rule 1
After a breakout, once the stock has risen 20%, you might wonder if it could go 50% or even 100% higher—and if there isn’t a sell signal such as a break below the 50-day moving average, why hold it?
At first, this may seem counterintuitive. However, experience quickly teaches you that the 20–25% range often represents an ideal point to secure profits and eliminate the risk of losing that initial 20% gain.
Studies indicate that most growth stocks tend to establish a new base after rising 20–25% from the entry point. It’s a good rule to secure at least part of your gains. You don’t need to sell your entire position; consider selling as little as 25% or even 20% of your holding.

Sell Rule 2
When a stock is strongly rising, you may see it extend above its 10-day moving average by 10–15%—in addition to breaking above the 21-day and 50-day moving averages. This is generally an excellent time to sell an additional 25% or 20% of your position. The 50-day moving average is available on all IBD charts on Investors.com.

Sell Rule 3
It is reasonable to expect a pullback once a stock has extended above its 10-day moving average following an upswing—no stock can keep rising forever. Investors might use the 21-day moving average as a safety line. When a stock falls below either of these moving averages, it is a good time to sell the remaining shares you hold.
However, if the stock clearly drops below the 50-day moving average (or the 10-week moving average on weekly charts), it’s time to sell all of your remaining position. A break of these lines on heavy volume adds further reason to sell.
Such a break indicates that institutional investors are no longer supporting the stock during a decline. Selling below its previous high will help avoid even greater losses.