Profit-Taking Range: Consider taking profits when a stock gains 20–25%.
Additional Profit-Taking Indicator: When a stock rises 10–15% above its 10-day moving average.
Final Sell Signal: When the stock falls below its 10-day, 21-day, or especially the 50-day moving average.
Opinion
Investors tend to miss the optimal sell point due to their desire to maximize gains when stocks are rising. Therefore, it is essential to use the distance from the moving averages as a clear metric, and develop a step-by-step profit-taking strategy. Setting rules to sell part of the position when an initial 20–25% profit is achieved, or when the stock moves excessively away from its moving averages, can help suppress emotional decision-making and manage profits more steadily over the long term.
Core Sell Point
A strategy that systematically takes profits based on clear moving average thresholds not only minimizes losses but also enhances long-term investment performance and psychological stability.
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.
