In today’s booming market, “Magnificent Seven” stocks like Nvidia (NVDA), Meta Platforms (META), Microsoft (MSFT) and Amazon.com (AMZN) continue to post or pursue record highs. At times like these, investors should have — and follow — time-tested rules on when to sell stocks to protect profits.

X

IBD’s recommended market exposure level provides one way to gauge how aggressive or defensive investors should be. Check The Big Picture column or this page to see the current level and monitor any changes.

As the market indexes continue to rally, also keep an eye on how far above the 50-day moving average leaders like Nvidia, Meta, Microsoft and Amazon trade. Generally, when a stock climbs more than 5% above that line, the chances of a pause or pullback increase. For example, Nvidia stock now stands more than 30% above its 50-day benchmark.

Take Alphabet (GOOGL) as another recent example. On Jan. 29, Google stock hit a record high and closed 10.6% above its 50-day line. Alphabet then gapped down after reporting earnings. The stock found support at its 50-day moving average and bounced back until taking a hit on controversy surrounding its Gemini chatbot. Google stock closed Friday around 4% below its 50-day line.

A sudden drop on unexpected news may be unavoidable. Monitoring action around key moving averages in individual stocks is a key factor in determining when to sell. Investors also should pay attention to how overbought or oversold the general market may be.

Regardless of the conditions, investors can stay profitable and protected by following these guidelines on when to sell:

8 ‘Secrets’ For When To Sell Stocks

It’s easier to be objective when it comes to deciding what stocks to buy. Before you invest money, you can use stock lists, a stock screener and stock ratings to identify the best stocks to buy and watch.

But once you own shares and have skin in the game, your psychology changes. Emotions of both greed for big gains and fear of big losses kick in. These emotions can cloud your decision-making. That makes it more difficult to keep an unbiased, objective look on when to sell stocks.

To stay grounded and in the right mindset, keep these eight “secrets” in mind.

1. Everyone makes mistakes. Just be sure to cut all losses short.
   Even the best investors get hit with a loss from time to time. But they don’t indulge in worry as the stock drops even further. They cut their losses quickly and move on. Leave your ego and pride at the door. Don’t let a loss get to you — either mentally or financially.
2. If you don’t sell too early, you’ll sell too late.
   To lock in solid gains, sell while your stock is still going up. As IBD founder William J. O’Neil has said, “Your objective is to make and take significant gains and not get excited, optimistic, greedy, or emotionally carried away as your stock’s advance gets stronger.” Following the 20%-25% sell rule can help you do that. In a bull market, leading growth stocks like Nvidia and Meta can, of course, run longer than expected. But locking in some profits along the way allows investors to safeguard a portion of those gains. It also reduces the risk of giving back too much in an extended pullback. Call it a prudent balance of FOMO and FOMU: Fear of missing out and fear of messing up.
3. Have a selling plan in place before you buy.
   The real drama kicks in when it comes time to sell. If you don’t have sell rules and an exit plan, it’s easy to freeze and not take action when needed. If your stock is soaring, you might get greedy and ignore certain sell signals and warning signs. Also, if you’re sitting on a loss, you may do the “hold and hope” routine. You pray it bounces back — while it continues to drop. Stay grounded and keep your emotions at bay by having a selling plan in place ahead of time. Write down your target sell prices for both taking profits and cutting losses.
4. Don’t let a decent gain turn into a loss.
   If you have a nice gain of, say, 10%, 15% or more and the stock begins to decline, don’t let that profit disappear completely. It’s much less frustrating to see a 15%-20% gain turn into a 5%-10% profit than to see it turn into a 10% loss. You can always buy the stock back if it shows renewed strength and forms a proper buy point.
5. Don’t marry your stocks. Just date them!
   “For better or for worse, for richer or for poorer” is a noble and time-honored approach to marital fealty, but it’s a bad idea when it comes to investing in stocks. In most cases, it’s better to take a good gain while you have it. And never hesitate to separate and protect yourself from a bad relationship if there are clear signs of trouble.
6. Sell your losing stocks first.
   When building a winning basketball team, you wouldn’t trade away all your top players for a bunch of benchwarmers. Yet many investors do just that. They sell stocks in which they have a good gain and hold those showing a loss. Further, they think a big gain is just around the corner. That’s usually just wishful thinking. Do the opposite. Sell your losers and use that money — provided the market trend is favorable — to add winners to your roster or invest more money in the top performers you already own.
7. When buying a stock, focus on both the fundamentals and the stock chart. When selling, focus on the chart.
   They say the view is great at the top, and that often applies to stocks as well. The warning signs typically show up in the stock chart — i.e., technical analysis — before they appear in the company’s fundamentals. It’s crucial to use both technical and fundamental analysis when buying stocks. The same is true on deciding when to sell stocks. Focus on the chart and technical analysis, like price and volume action and behavior around key moving averages.
8. The most important sell rule is to buy at the right time.
   A very common mistake, particularly for beginning investors, is buying at the wrong time. Some will not pay attention to market timing and buy during a market correction when most stocks go down. Or they’ll ignore the technical action in the stock chart and either buy too soon or too late. So before buying a stock, make sure three key factors — market trend, big earnings driven by something new, and institutional support — are in place. Doing so helps get you in at the right time, with the odds of success squarely in your favor.

Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.

YOU MAY ALSO LIKE:

Investor’s Corner: Tips On When To Sell Stocks

This Hot IPO Joins Nvidia And Meta On List Of 18 ‘Perfect’ Stocks

What Makes Meta Magnificent Makes Tesla Terrible (For Now)

Generate New Stock Ideas With IBD Stock Screener

MarketSmith Is Now MarketSurge. Explore What Else Is New.