When To Sell Stocks: How To Sit Tight In Big Winners Such As Chipotle, Microsoft, Cisco Systems (2024)

If you have a winning stock in hand, you might think about this question: How long should I hold the stock? Could this one become an exceptional moneymaker? Indeed, there's no easy answer to the resolving the issue of when to sell stocks.


Numerous factors matter. One, it depends a lot on what point you began to invest in the market cycle. A bull market tends to last two to four years. The big money tends to be made in the first year or two.

In most cases, profits should be taken when a stock rises 20% to 25% past a proper buy point. Then there are times to hold out longer, like when a stock jumps more than 20% from a breakout point in three weeks or less. These fast movers should be held for at least eight weeks.

After those eight weeks pass, the next step is to study the stock's chart and see if it is holding up well. If so, and the market is rising, chances are good the uptrend will continue. You hold. Later on, a new breakout may send shares even higher.

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For true market leaders, the typical time from a breakout price to peak ranges from 12 to 18 months.

But when you truly have something special in your hands, you have to give it even more room to bloom.

"If you really know and understand a company thoroughly and its products well, you'll have the crucial additional confidence required to sit tight through several inevitable but normal corrections," William O'Neil, longtime chair and founder of IBD, wrote in "How To Make Money In Stocks."

When To Sell Stocks: The Art Of Holding

In the 1923 classic "Reminiscences of a Stock Operator," author Edwin Lefevre profiles the extraordinary trader of the early 20th century, Jesse Livermore. Lefevre quotes Livermore as saying, "After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that the made the big money for me. It always was my sitting. Got that? My sitting tight!"

"I have repeated the mistake of grabbing at small profits and selling at a targeted round number over and over in my speculative career," wrote Victor Niederhoffer, a futures expert and former currencies trader for the former hedge fund titan George Soros, in the 1997 autobiography "The Education of a Speculator."

"I believe many others make this same error.The reason: Many players set their sights at certain reasonable targets. Fast-moving operators, aware of these targets, come in just ahead, ready to take the other side, knowing that there will be considerable pressure to offset at prices not much worse than current. This pressure usually drives the price away from the target. But if the price can overcome these operators and reach the target, something big is about to happen," Niederhoffer added.

Staying with a stock for some time will allow gains to compound, especially if you can locate follow-on entry points and add shares when it breaks out anew.

In a general bull market, winners may be held for years. One of O'Neil's huge winners, Pic N Save (now known as Big Lots (BIG)), was held for more than six years.

Two Giant Winners In Tech Land

Microsoft (MSFT) was a gigantic winner from the late 1980s through the late 1990s. With its dominant position in operating systems and productivity software, its stock skyrocketed from a split-adjusted breakout near 90 cents in September 1989 to its high of 119.94 in December 1999.

Cisco Systems (CSCO) soared 75,000% from an initial buy point in late 1990 before finally topping in March 2000. The networking titan had huge earnings and sales gains as well as juicy profit margins and a high return on equity.

Both Microsoft and Cisco Systems were among the best at what they did. Both companies also benefited greatly from the tech and internet boom.

Returning To Leadership In The Restaurant Sector

Chipotle Mexican Grill (CMG) was a big market winner after the stock market bottomed in March 2009. After the 2007 to 2008 bear market, the stock bottomed before the market did so in March 2009. The stock later broke out to 52-week highs in January 2010 and ran up 348% before topping in April 2012. It built a series of bases along the way.

When To Sell Stocks: How To Sit Tight In Big Winners Such As Chipotle, Microsoft, Cisco Systems (1)

The firm delivered quarter after quarter of double-digit earnings and sales gains, thanks to its simple menu of fresh, higher-quality ingredients.

When did the stock show a major sell signal?

In late July 2015, Chipotle broke out of a long saucer base. It had one major flaw: Most of it formed beneath the 10-week moving average. Gains were scrawny after Chipotle moved past a 728.07 entry, exceeding no more than 4%.

Learn Key Sell Rules

Starting with the week ended Oct. 16, 2015, the restaurant play slumped six weeks in a row, falling in heavy volume and crashing through its 10-week moving average and then taking out its 40-week line — two critical sell signals. (Go to a historical MarketSmith chart to see this specific time frame.)

A third sell signal? It easily fell 8% below the buy point of 728.07.

Those who sold on any of those signals would have saved a lot of money; Chipotle went on to battle its worst PR crisis as customers across the country got sickened by tainted ingredients throughout the second half of the year.

A new strong breakout didn't emerge until January of 2019.

A version of this story first appeared in the March 20, 2013, edition of IBD.Please follow Chung on Twitter at @SaitoChung and @IBD_DChung for more on growth stocks, buy points, breakouts, chart analysis and stock market analysis.


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When To Sell Stocks: How To Sit Tight In Big Winners Such As Chipotle, Microsoft, Cisco Systems (2024)


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 should you sell a winning stock? ›

If something fundamental about the company or its stock changes, that can be a good reason to sell. For example: The company's market share is falling, perhaps because a competitor is offering a superior product for a lower price. Sales growth has noticeably slowed.

How do you know when to hold or sell a stock? ›

When to sell a stock: 7 good reasons
  1. You've found something better. ...
  2. You made a mistake. ...
  3. The company's business outlook has changed. ...
  4. Tax reasons. ...
  5. Rebalancing your portfolio. ...
  6. Valuation no longer reflects business reality. ...
  7. You need the money. ...
  8. The stock has gone up.
Apr 19, 2024

What is the best order to sell a stock? ›

A market order is an order to buy or sell a stock at the market's current best available price. A market order typically ensures an execution, but it doesn't guarantee a specified price. Market orders are optimal when the primary goal is to execute the trade immediately.

What is 90% rule in trading? ›

The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.

What is the 80% rule in trading? ›

The Rule. If, after trading outside the Value Area, we then trade back into the Value Area (VA) and the market closes inside the VA in one of the 30 minute brackets then there is an 80% chance that the market will trade back to the other side of the VA.

What is the 10 am rule in stock trading? ›

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

What week day is best to sell stocks? ›

Many traders and investors believe Friday is the best day to sell stocks. This belief comes from observations of the aforementioned Friday Effect, where stocks often enjoy a slight bump in prices as the trading week comes to a close.

Should I sell my stocks now in a recession? ›

If you want to mess around with a small amount of money you're OK with losing, that's fine. But long-term investing is a far more certain path to wealth in the stock market. Day trading as an investment strategy is generally a bad idea. Don't sell just because your stocks went down.

Who buys stocks when everyone is selling? ›

The buyer could be another investor or a market maker. Market makers can take the opposite side of a trade to provide liquidity for stocks that are listed on major exchanges.

What is the 3 day rule in stocks? ›

In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.

Is it legal to buy and sell the same stock repeatedly? ›

As a retail investor, you can't buy and sell the same stock more than four times within a five-business-day period. Anyone who exceeds this violates the pattern day trader rule, which is reserved for individuals who are classified by their brokers are day traders and can be restricted from conducting any trades.

What is the 1 rule in stock market? ›

Applying the 1% Rule in a Single Trade

Determine your risk capital, i.e., the total amount of money you're willing to risk in your trading. This should be money that you can afford to lose without it affecting your lifestyle. Calculate 1% of your risk capital.

What is the 5 rule in the stock market? ›

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

When to sell stocks to avoid taxes? ›

Selling a stock for profit locks in "realized gains," which will be taxed. However, you won't be taxed anything if you sell stock at a loss. In fact, it may even help your tax situation — this is a strategy known as tax-loss harvesting.

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? ›

The 3-30 Rule: One interpretation of the "3.30 formula" could be related to the 3-30 rule in the stock market. 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.

What is the 70 30 trading strategy? ›

The 70/30 RSI trading strategy has two threshold levels

The RSI, which has a range from 0 to 100, is commonly used to identify overbought or oversold conditions in a market. The 70/30 RSI strategy involves setting two threshold levels on the RSI indicator: 70 for overbought conditions and 30 for oversold conditions.


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