Individual Investor

Five Tips on When to Exit

The right plan for a stock sale can protect gains or minimize losses

Knowing when to sell a stock can be far trickier than picking one. It may not feel right to unload a stock that's soaring or to dump one that's down. Yet you can sometimes give up a gain or magnify a loss by sticking around too long. Mike McGrath, Director, Trader Products at TD AMERITRADE, gives these exit-strategy tips.

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• 1

  Revisit your entrance strategy

  "Is the reason you entered the position still there? It's possible that a number of factors could have changed that make it time to exit," notes McGrath. "Your price target may have already been met, or new information may have been uncovered that changes your outlook."
• 2

  Remember Your Risk Tolerance

  "How strong is your stomach?" McGrath asks. "Investors often amplify losses by hoping for a rebound in a stock that has depreciated. Identifying an exit point up front and then sticking to it can prevent bad investments and allow you to move on to potentially better ones."

• 3

  Consider the Fundamentals

  Stock price moves are often prompted by changes in the underlying economics of a business or industry or by a corporate announcement. "If a company's about to report earnings, you may want to consider such events when planning an exit," McGrath says.
• 4

  Employ Analytical Tools

  Using technical analysis to detect price patterns and market trends can help you identify exit points. Charts, for example, can show support and resistance levels in a stock price. McGrath suggests using multiple indicators to help confirm your outlook.
• 5

  Use Advanced Orders

  "Conditional Orders and Trailing Stops may help you stay disciplined," McGrath says. "Trailing Stops can let potential winners run and protect from pullbacks. Using Conditional Orders to help bracket a position will help you identify upside and downside exit points." — JP