figuring out when to let go of a stock could be a tough decision to make and
there are basically two types of selling defensive selling to cut your losses and
offensive selling to protect your profits we've already gone over the
basics of defensive selling which says to cut your losses at no more than seven
to eight percent now let's take a look at a key offensive sell rule take most
of your profits when the stock has risen twenty to twenty-five percent from a buy
point this profit-taking zone is based on a stock's ideal buy point which may
be different from your own purchase price so if you bought a stock 2% past
its buy point for example then your actual profit would be 18 to 23 percent
if you followed this rule why 20 to 25 percent as a general benchmark because
history has shown us that stocks often pull back to form a new base after
reaching that level so rather than giving back those gains in hopes that
the stock will bounce back you can proactively lock them in using the sell
rule capturing a string of these types of gains can help you build large
overall profits without the risk of pinning all your hopes on one particular
stock in other words the odds are better if you reinvest your money and get 20 to
25 percent gain out of three different stocks then try to get a hundred percent
profit out of a single stock home decor retailer At Home Group is a good example
of how and why this rule works in April of 2018 the stock cleared a 34.02 buy
point At Home continued to edge higher over the next several weeks and then it
did what many stocks do after gaining 20% from a breakout it began to retreat
over the next few weeks not only did At Home give back all of its gains it
actually fell back below the original buy point so if you had held the stock
you would have gone from a 20% gain to a 3% loss if At Home is able to form a new
base and breakout you might decide to buy it again or you might choose to invest
in a better performing stock or just hold on to the cash for a while
whichever step you take you'd be taking it with profits in your pocket and you'd
be in a good position to start compounding that 20% gain and
even greater overall profits
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