How To Sell Stocks: Want Long-Term Profits? Take Many Gains This Way (2024)

Many new investors wonder when is the right time to sell stocks. An old Wall Street saw has it that nobody ever went broke taking a profit. Actually, that saying isn't 100% correct. You won't go broke so long as your profits are always bigger than your losses.


For that reason, IBD has long since encouraged readers to limit their downside risk in every trade. Cut losses in each investment at 7% or less. No questions asked. Just move on to the next trade. The golden rule of selling is as simple as that.

When a stock is going the right direction, your decision making is not as easy. How long should you hold? Here's a specific rule to help boost your prospects for long-term stock investing success: Once your stock has broken out, take most of your profits when they reach 20% to 25%. If market conditions are choppy and decent gains are hard to come by, then you could exit the entire position.

But if the market winds are favorable and your stock appears to be still in the early stages of its run, then go ahead and sell at least part of the position, such as a third or half, to lock in gains. Keep watching the stock's behavior to decide how to handle the remainder.

IBD founder William O'Neil formulated this rule in the early 1960s, when he noticed that most stocks broke out of well-formed bases, ran up 20% to 25%, then corrected sharply in price. O'Neil learned to sell on the way up.

When Not To Sell Stocks: Sometimes This Rule Kicks In

The exception to this sell rule? When a stock runs up 20% or more in one, two or three weeks after breaking out of a sound base, and the market is in a healthy uptrend. Try to hold it for at least eight weeks to see if it can be held for a bigger long-term gain. Stocks that get off to a fast start often yield the biggest profits.

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"Those could be your big leaders and should be held for a potentially greater profit," O'Neil wrote in "How to Make Money in Stocks."

Here are more reasons to take many gains on the way up:

One, all of your stocks aren't going to be huge winners. Many, probably most, of the stocks you buy in a bull market are going to be profitable, but won't become among the best winners of the decade.

Two, you will have inevitable losses along the way, which should be cut at no more than 8%. So you can lose twice and win once and still be ahead.

Three, taking a profit feels good. It boosts confidence when you move some cash to the realized capital gains column in your brokerage account.

Four, money committed to a stock going through a monthslong correction is dead money. That cash could be applied to another stock that's rising and even stronger than the one you just sold.

Five, you can always buy a stock back if it presents another valid buy point.

How To Sell Stocks: Want Long-Term Profits? Take Many Gains This Way (1)

In 2013, Las Vegas Sands (LVS) broke out of a cup-with-handle base with a 58.11 buy point during the week ended Sept. 16. Over seven weeks, it gained 26%, a good time to take profits (1).

It paused to build a six-week flat base with a 73.59 proper buy point (2). Sands broke out again in the week ended Dec. 6, 2013, but the gain was limited to 12%. Then Sands pulled back and surrendered all of those gains.

The Third Was Not A Charm

A third breakout from a faulty base failed almost instantly. Notice on the chart how the cup was V-shaped. Also, the base was five weeks long, below the minimum requirement of six weeks for a cup without handle.

By September 2014, Sands retreated all the way back to its early breakout price of 58.21. The casino resort operator continued to fall sharply in 2015 as China's government began to clamp down on big spending in Macau, the only place in the country where gambling is legalized. By January 2016, shares in Las Vegas Sands dropped to a low of 34.55, down more than 60% from the 88.28 peak in March 2014.

Peaking Before Fundamentals Slow Down

The problems with the third base and the sharp decline foreshadowed a slowdown in Las Vegas Sands' fundamentals. Earnings per share showed excellent growth, starting with a 48% jump in the second quarter of 2013 and followed with increases of 78%, 33%, 37% and 31% in the next four quarters through the second quarter of 2014. Revenue also grew at a hot rate over the same period.

But in the second quarter of 2014, a 12% top-line increase showed a marked slowdown from gains of 26%, 32%, 19% and 21%.

When a company has logged four quarters or more in a row of fantastic profit and revenue gains, you can expect a material slowdown to occur. Indeed, Sands saw revenue dip 1% to $3.53 billion in the third quarter of 2014. Earnings rose only 2% to 84 cents a share after catapulting 78% higher in the year-ago quarter.

A version of this column originally ran in the July 1, 2015, edition of IBD. Please follow Chung on Twitter at both @SaitoChung and @IBD_DChung for more on growth stocks, chart analysis, sell rules and financial markets.


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How To Sell Stocks: Want Long-Term Profits? Take Many Gains This Way (2024)


How To Sell Stocks: Want Long-Term Profits? Take Many Gains This Way? ›

How long should you hold? Here's a specific rule to help boost your prospects for long-term stock investing success: Once your stock has broken out, take most of your profits when they reach 20% to 25%. If market conditions are choppy and decent gains are hard to come by, then you could exit the entire position.

What is the 3 5 7 rule in trading? ›

What is the 3 5 7 rule in trading? A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.

When you sell a stock How long does it take to get the money? ›

In fact, it takes two trading days for equity trades to settle. This means if you sold a stock on Monday, you wouldn't receive the cash until Wednesday.

How do you make long term profits in stocks? ›

Stay invested with the "buy and hold" strategy

Your length of time in the market is the best predictor of your total performance. The buy and hold strategy is exactly what it sounds like — you buy stocks that you believe will perform well over the long-term, then hold onto them for years to come.

How to take profits from stock gains? ›

The Rule of 72

This simple calculation shows how effective following the 20%-25% profit-taking rule can be. Here's how it works: Take the percentage gain you have in a stock. Divide 72 by that number. The answer tells you how many times you have to compound that gain to double your money.

What is the 11am rule in trading? ›

It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.

What is the 80 20 rule in trading? ›

In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.

What is the 3 day rule in stocks? ›

The 3-Day Rule in stock trading refers to the settlement rule that requires the finalization of a transaction within three business days after the trade date. This rule impacts how payments and orders are processed, requiring traders to have funds or credit in their accounts to cover purchases by the settlement date.

When should I cash out my stocks? ›

When to Sell Stocks — for Profit or Loss
  1. Your investment thesis has changed. The reasons why you bought a stock may no longer apply. ...
  2. The company is being acquired. ...
  3. You need the money or soon will. ...
  4. You need to rebalance your portfolio. ...
  5. You identify opportunities to better invest your money elsewhere.
Nov 13, 2023

What taxes do I pay when I sell stock? ›

If you sell stocks for a profit, you'll likely have to pay capital gains taxes. Generally, any profit you make on the sale of an asset is taxable at either 0%, 15% or 20% if you held the shares for more than a year, or at your ordinary tax rate if you held the shares for a year or less.

Why are the rich selling their stocks? ›

In mid-2023, news began to spread about the world's super-rich reducing their ownership of shares in public companies. The reason behind this move is to secure their wealth amidst rising interest rates and economic uncertainty. Similar issues are still ongoing to this day.

What is the best day to sell stocks? ›

If Monday may be the best day of the week to buy stocks, then Thursday or early Friday may be the best day to sell stock—before prices dip.

What is the best take-profit strategy? ›

Best profit-taking strategies to enhance your trading
  • Trend following exits. The most basic of all trading strategies revolve around moving averages. ...
  • ATR trailing stops. ...
  • Using support and resistance for exits. ...
  • Using divergence signals to exit your positions. ...
  • Time-based exits. ...
  • Candlestick exits. ...
  • Fundamental exits.

What is the 20 25 sell rule? ›

20%-25% profits-taking rule

When the stock price goes up and reaches that percentage, you sell the stock to secure your gains, which will also boost your confidence in further investment.

Should I sell half my stock when it doubles? ›

In my opinion, one of the simplest, oldest methods, and most effective ways to help lock in profits and let your winners ride, especially with lower-priced, smaller-cap stocks, is to sell half on a double. This way you take your initial investment off the table and you let your winnings ride.

How long should you hold a stock for? ›

If your stock gains more than 20% from the ideal buy point within three weeks of a proper breakout, hold it for at least eight weeks. (The week of the breakout counts as week 1.) If a stock has the power to jump more than 20% so quickly out of a proper chart pattern, it could have what it takes to become a huge winner.

What is the golden rule of traders? ›

Let profits run and cut losses short Stop losses should never be moved away from the market. Be disciplined with yourself, when your stop loss level is touched, get out. If a trade is proving profitable, don't be afraid to track the market.

What is No 1 rule of trading? ›

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

What is the 3 30 rule in trading? ›

This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle [1].

What is the 60 40 rule in trading? ›

While short-term capital gains from stocks or ETFs are taxed at your ordinary income tax rate, futures are taxed using the 60/40 rule: 60% are taxed at the long-term capital gains tax rate of 15%, while only 40% of your short-term capital gains are taxed at your ordinary income tax rate.


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