Effective Stock Limit to Sell

brooklyn_3p3 · Joined: 17 Feb 2007 Posts: 5

Hello. I was wondering, how effective is it to set a sell limit on a stock, by that I mean, telling your broker that if the stock reaches a certain level they should sell it? I always wanted to know how to make money in the stock market - without the agonizing stress and uncertainty. Please tell me how is that possible.

info · Joined: 07 Feb 2005 Posts: 23

Hi brooklyn_3p3,

By setting a sell limit you are safeguarding yourself from further falls in the share price. If you you have no time to follow the market on daily basis (at least twice per day) then a stop sell is a very good idea.

A sell stop is an order to sell a stock if it drops below a specified price. You can use sell stops to minimize your losses when you make a mistake. For instance, say you buy a stock at $40 and, instead of going up, it heads down. A sell stop at $36 would convert to a market sell if your stock hits that price, which, in most cases, would limit your loss to 10%. However, setting a sell stop doesn’t guarantee that you will get that price. Bad news could hit, for example, and the stock might open for trading on a given day at $30 -- after closing a $40 the day before. In that instance, you would only get $30 for your shares, even though you had set a $36 sell stop.

My own trade rules are as follow:

1) I never get emotionally attached to the shares i own.
2) I always sell when a share goes above 10% in value...regardless
3) I always sell when a share falls under 10% in value...regardless

This strategy has proven itself very successful over the years...you do make fairly consistent gains (over the long run) if you stick with it.

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