Lessons On Selling Stocks

How to Sell Stocks to Maximize your Profits


Buying a stock is only half of your journey to building your wealth. Knowing when to sell is just as important. The first part of this course discusses why it's critical to cut your losses early. The second and third lessons teach you how to spot the best time to sell and take your profits.

These lessons are based on decades of research into the primary factors that move stocks. These principles aren't based on someone's opinion or theories from business schools. They're all based on what actually works in the market.

Lesson 3. Selling Indicators

Just like stocks flash signals before making huge gains, they can also show certain characteristics that indicate potential trouble. In this lesson, you'll learn to identify the warning signs of a weakening stock.

If sales growth starts to slow, does it really mean trouble for a company?

If the leading stock in an industry group sputters, does it spell a similar fate for other stocks in the group?

And must you always sell if earnings are disappointing?

For investors, these questions are just as challenging as finding the right stocks to buy. Sometimes, stocks can fool you. They peak on seemingly the best days, when financial magazines rave about them, and shareholders are bubbling with excitement.

But some of the same tools that indicate the potential for a stock to rise can also tell you if a stock is headed down. This lesson will help you isolate the most useful fundamental indicators. But keep in mind that a stock's price and volume action is also valuable in spotting sell signs. Often a stock's chart will reveal something wrong with a stock much earlier than fundamental factors.

If you want clues to a stock's decline, you can basically take all the financial indicators that drive a stock up - such as earnings growth, sales growth and profit margins - and turn them upside down. These are your red flags:

Warning sign - a sharp slowdown in earnings growth in back-to-back quarters.

Warning sign - a sharp slowdown in earnings growth in back-to-back quarters. For example, if a company's earnings growth has been in the 100% range for several quarters, it's bad news when that slows down to 20% or 30%. Dalal Street has little patience and will quickly turn its attention to other, faster-growing companies. You should also pay attention to companies whose earnings or sales growth break a habitual pattern. For example, if a company had earnings growth over several quarters between 25% and 35% and then reports three quarters of steady deceleration, this could be a red flag. Such subtle slowdowns in earnings or sales can sometimes lead to the company eventually missing earnings forecasts.

Warning sign - significant drops in other main fundamentals

Warning sign - significant drops in other main fundamentals — sales growth, profit margins and return on equity — should serve as warning signs, especially if the stock starts having trouble making gains. Check the Sales + Profit Margins + ROE Rating for any significant drops in this gauge.

When industry leaders fall, other players in that industry become vulnerable.

When the majority of best-performing stocks in an industry fall sharply on heavy volume and are unable to recover, typically other stocks in the same industry could become vulnerable. For example, if leading pharma stocks are falling, other pharma stocks become vulnerable.

One of the best ways to tell if a stock might go higher is by how it's performing already. When a stock no longer outperforms its peers, it's telling you the road will probably get bumpy. You can tell exactly how a stock is performing with the Relative Price Strength. Your stock should better than its pears.

Follow the buying and selling done by institutional investors.

The trading activity of mutual funds and other institutional investors has a huge influence on stock prices. Just as it's wise to buy stocks that funds are buying, you might in certain cases, consider selling stocks the funds are selling. Professional selling can be witnessed on the charts when stocks fall on heavy volume. One can also see the institutional holding in the shareholding pattern published every quarter on the websites of BSE and NSE.

Larsen & Toubro's Shareholding Pattern

Description Percent of Share (%)
Promoters 0.00
Individuals 23.96
Institutions 36.63
FII 15.62
Govt. 0.00
Others 23.79

Stock splits are when a company increases its shares outstanding and the share price is adjusted accordingly. For example, XYZ Ltd. sets a 2-for-1 split of 1 crore shares trading at Rs. 50 each. After a split, there are twice as many shares, or 2 crore, trading at Rs. 25. Companies do this to lower the share price in hopes of drawing more investors into the stock.

In case of stock splits
a. The number of shares outstanding increases
b. The share price decreases

But too many splits can have the opposite effect. Adding shares can tilt the supply-demand equation because there's a bigger supply of shares to go around. The stock price could fall. Carefully watch any stock that has split more than once in the past 12 months. Consider selling if a stock runs up 25% to 50% for one or two weeks on a stock split. However, a few hyper-growth stocks have kept climbing despite more than one split a year.

  • Consider selling a stock if it shows fundamental signs of weakness, such as a steady deceleration in earnings or sales.
  • Watch for weakness in the stock's industry group. When the leading stocks in an industry decline, the other stocks in the group may typically go down, too.
  • If there are signs that mutual funds are consistently selling the stock, you should consider selling.
  • Too many stock splits close together in time can push a stock lower.

Leave a comment

15 Comments


Vimal Bhatia
Sep 03, 2018 at 06:18 Reply

Thanks again for your help and advice on this site.


Team StockAxis
Sep 04, 2018 at 09:58

Dear Vimal Bhatia,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

Using the EV/EBITDA multiple smartly!

Using the Debt-Equity Ratio Smartly!

Regards,
Team Stockaxis


Chhogalal Mehta
Sep 03, 2018 at 07:17 Reply

Nice


Team StockAxis
Sep 04, 2018 at 09:59

Dear Chhogalal Mehta,

Thank you for your appreciation Sir

We recommend you to also read the following blogs.

Using the EV/EBITDA multiple smartly!


Regards,
Team Stockaxis


Satish Shah
Sep 02, 2018 at 04:21 Reply

Nice educative information


Team StockAxis
Sep 04, 2018 at 10:04

Dear Satish Shah,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

Using the Debt-Equity Ratio Smartly!

Regards,
Team Stockaxis


MPS Chauhan
Sep 02, 2018 at 11:21 Reply

A wonderful and interesting learning material. Thanks Stockaxis Team


Team StockAxis
Sep 04, 2018 at 10:06

Dear MPS Chauhan ,

We Thank you for your comments, Sir. The fact that we could help you makes us do better every day

We recommend you to also read the following blogs.

5 Rules to Deal With a Volatile Market

Regards,
Team Stockaxis


s c goyal
Sep 01, 2018 at 10:03 Reply

The lessons are very informative and would certainly go long way to help in taking considered decision. Thanks


Team StockAxis
Sep 11, 2018 at 10:55

Dear s c goyal,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

Using the EV/EBITDA multiple smartly!

Use The P/E Ratio Smartly!

Regards,
Team Stockaxis


Vinayak Hanamant Kulkarni
Sep 01, 2018 at 06:34 Reply

GOOD INFORMATION THANKS


Team StockAxis
Sep 04, 2018 at 10:00

Dear Vinayak Hanamant Kulkarni,

We Thank you for your comments, Sir.

We recommend you to also read the following blogs.

Using the Debt-Equity Ratio Smartly!

Regards,
Team Stockaxis


Ravindranath Chowdary
Sep 01, 2018 at 05:09 Reply

It was very educative. Could you clarify the Max holding period or factors to be considered for holding if you are already 10% or more down from purchase price in seemingly good scrips on basic parameters.


Team StockAxis
Sep 11, 2018 at 11:04

Dear Ravindranath Chowdary,

Thank you, Sir, for the appreciation.

8% rule only signifies the risk appetite of an investor. However, if the stock has corrected more than 8% than all the fundamentals of the company and financial ratio along with any news that may be driving the stock price down.

If you are buying with a long-term perspective than we recommend you not to buy the stock all at once. Buy some quantity and if the stock correct let it correct until its trend changes and average at the point so that you get the best average rate.

Regards,
Team Stockaxis


gopan
Aug 26, 2018 at 08:30 Reply

FABULOUS


Team StockAxis
Aug 30, 2018 at 10:50

Dear gopan,

Thank you, Sir, for your comment.

We recommend you to also read the following blogs.

Use The P/E Ratio Smartly!

Regards,
Team Stockaxis


AJAY JETHVA
Aug 25, 2018 at 10:22 Reply

Excellent details


Team StockAxis
Aug 30, 2018 at 10:44

Dear AJAY JETHVA,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

Using the EV/EBITDA multiple smartly!

Use The P/E Ratio Smartly!


Regards,
Team Stockaxis


Sukimar
Aug 19, 2018 at 09:37 Reply

I find it very useful.i was about to stop trading but your lessons make me try for someore time. I only trade intra in short position. I have made more calls correct but in some cases I have taken huge loss resulting in net loss.whst do u advice please


Team StockAxis
Aug 20, 2018 at 10:19

Dear Sukimar,

We are happy that our lesson could guide you. However, we advise you to that if you are looking for wealth creation we recommend you to invest for long-term as that can help you recover all the losses that you have made in the past and will also help you create value in the future.

We recommend you to also read the following blogs.

Using the Debt-Equity Ratio Smartly!

StockAxis Market Intelligence (Commentary for July 2018; Outlook for August 2018)


Regards,
Team Stockaxis


AJOY MAZUMDER
Aug 18, 2018 at 05:39 Reply

Excellent learning. Watching out for next classes


Team StockAxis
Aug 20, 2018 at 10:04

Dear AJOY MAZUMDER,

Thank you for your appreciation, Sir.

We will continue to post such lesson in order to educate investors so that they can take the wise decision possible for their investments.

We recommend you to also read the following blogs.

Use The P/E Ratio Smartly!

Using the Debt-Equity Ratio Smartly!

StockAxis Market Intelligence (Commentary for July 2018; Outlook for August 2018)

Regards,
Team Stockaxis


George Varghese
Aug 18, 2018 at 04:14 Reply

Very good information and an eye opener to retail investors. Thank you for sharing these lessons.


Team StockAxis
Aug 20, 2018 at 09:59

Dear George Varghese ,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

Using the EV/EBITDA multiple smartly!

Use The P/E Ratio Smartly!



Regards,
Team Stockaxis


Satyaprasad Akella
Aug 11, 2018 at 08:37 Reply

Excellent lessons. For beginners every thing related to stock market and investment explained beautifully.easy to understand.Thank you stock Axis.


Team StockAxis
Aug 13, 2018 at 04:04

Dear Satyaprasad Akella,

We thank you for your comments sir.

We recommend you to also read the following blogs.

StockAxis Market Intelligence

5 Rules to Deal With a Volatile Market

Regards,
Team Stockaxis


Swapnali Harshal Patil
Aug 11, 2018 at 03:29 Reply

Excellent research report.....


Team StockAxis
Aug 13, 2018 at 04:01

Dear Swapnali Harshal Patil,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

StockAxis Market Intelligence

Using the EV/EBITDA multiple smartly!

Use The P/E Ratio Smartly!



Regards,
Team Stockaxis


Vaibhav Patil
Jul 14, 2018 at 02:09 Reply

Good research report. All points clearly understood.


Team StockAxis
Jul 16, 2018 at 03:56

Dear Vaibhav Patil,

Thank you for visiting us and believing in us!

We recommend you to also read the following blogs.

StockAxis Market Intelligence

Regards,
Team Stockaxis

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