How to take profits when a stock doubles is pleasant to ponder, even though not that many investors face this problem on a daily basis. It is important, however, because gains are always offset by inevitable losses elsewhere, and investors should take profits whenever they have them. Too many investors often fail to take profits, giving back much of their gains or even falling back into the red.
1. Sell enough shares to take your original cost out of the stock and let the profits run. Even if the remaining shares go down to zero, you will not have lost anything, and anything above zero is profit. Taking the original cost out of an appreciated stock takes the worry out of owning it because you are now “playing with the house money.”
2. Use partial sells on the way up to lock in profits as you go. Once a stock shows a decent profit, sell some shares to lock in some gains and let the rest ride for a little longer, in case there are more gains to be had. As the stock continues to advance, sell more. You will never sell right at the top, but you will certainly lock in gains as you go, without ever giving them back.
3. Place a good-till-canceled (GTC) stop-loss order just below the stock’s recent support level to lock in your profit without selling. A stop-loss order is only triggered if a stock sells down to the specified stop level; a GTC order is good for up to 60 days. A stop-loss order puts a floor under current profits without limiting the upside: if a stock does not sell down to the stop level, it is never sold and can go on to produce more gains. You can also ladder your stops by placing several partial stop-loss orders at different price levels and rolling them up as the stock advances.
4. Consider selling on the way down. Ideally, a stock should be kept as long as it is in an uptrend. Once it turns down, it should be sold. Technical analysis helps you determine when a stock’s uptrend has turned into a downtrend.
- “One Up on Wall Street”; Peter Lynch; 2000
- “Stan Weinstein’s Secrets From Profiting in Bull and Bear Markets”; Stan Weinstein; 1988
- “The Battle for Investment Survival”; Gerald M. Loeb; 2009
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