The BEST Time To Start Selling Penny Stocks!
Selling Penny Stocks – When’s The Right Time?
This is the hardest part of trading penny stocks…
Not the buying of a penny stock, or the research that goes into it.
But, deciding when to sell the Penny Stock.
Do it too early and you miss out on life-changing gains… hold on too long and you give up the gains you’ve worked so hard for.
I know, because every few weeks when I look at my portfolio, I ask myself a simple question – “Is now the time to sell this stock?”
Unfortunately, choosing to sell a stock can sometimes get complicated.
You see, there are lots of outside factors that many traders have to focus on…
Other Thoughts To Selling Penny Stocks…
Often new traders get their minds cluttered with too many details. And often selling a stock is a difficult choice. Nobody holds up a banner and says, “Sell now – this is as high as this penny stock’s going!”
Some penny stock investors look at the fundamentals… if the business is still strong, they won’t sell.
Others look at the technicals. Where is the stock in relation to its high? Where is it relative to the 50-day or 200-day moving average?
But this can create even more questions.
Then you have the tax implications… yep.
The government wants their share too.
Did you hold only a short time… then you get slapped with higher taxes… is it a long term gain – then taxes are lower – but you still have to pay.
Even the time of year comes into play…
Want to sell at the end of December… I hope you have a loss – because than you can write it off of this year’s taxes.
But, if you’re selling for a gain – you better wait till January so you can hold off paying that tax bill as long as possible. Just pray the stock doesn’t crumble.
Not A System For Selling Penny Stocks…
When it comes to selling a stock, I look at a lot of factors… but I’ll tell you this much… I NEVER let taxes determine the sell process.
That’s a risk you don’t want to mess with. I’ve seen stocks crumble, destroying the gains a trader had… all while waiting for the calendar to turn.
It doesn’t do you any good to watch a gain turn into a loss because you wanted to try and save on taxes.
That said, towards the end of the year, buying and selling penny stocks to lock in gains and losses – and balance taxes is a smart thing… And we’ll talk more about that later.
But once a stock looks like a sell, don’t wait – sell it.
Lock in the gains and smile all the way to the bank. Remember, you can always buy back in if things look good again.
So why would I sell a stock?
Here are three quick rules for deciding when to sell…
- Changes in business
- Big moves in valuation
- Stock or market weakness
So let me explain…
Selling Penny Stocks – The Business
If I’m watching a stock and I get the feeling the business is going strong… I might add to a position. However, if numbers look weak or the business starts struggling, I start to look at an exit strategy.
It’s hard to suffer through a business struggling to make money.
Investors will flee if growth rates fall (just look at Twitter $TWTR) or if profits don’t meet expectations. Even management lowering guidance can have a big impact on a stock and should be considered time for an exit.
Another reason to sell is valuation…
Selling Penny Stocks – The Valuation
Now valuation is in the eye of the beholder… but if you get a stock that has a huge run, and the valuation gets out of whack… look to exit.
You won’t ever pick the top… but by watching valuations, you’ll be likely to identify when the market’s gotten ahead of itself.
Many times these penny stocks see a swift run-up… then a slow and steady crumble as investors look for the next hot thing.
You’ll see this movement a lot in biotech stocks where a little news or hype can send a stock through the roof… Only to watch the share price fade as investors realize it will be years before the company has any product to sell.
The third big reason to sell is market and/or stock weakness…
Selling Penny Stocks – Weakness
This third one is hard to explain… but you’ll know it when you see it.
Keep an eye on your stock and if it moves funny, that is a critical time to sell.
For example… if the market keeps moving higher and the stock just sits there… it might be a sign to sell! Sometimes you’ll see the market start to swoon… that’s another big signal to sell.
Remember, the trend is your friend and if the market is weak… it will be hard for your stock to reach new highs.
I love to watch the Russell 2000 for indications on market direction.
The more you trade penny stocks, the more this will make sense to you.
How We Decide To Sell In Penny Stock All-Stars
Like I said, selling a stock is hard to do… and sometimes we get it right.
For example, back in October 2013, we added a stock to the Penny Stock All-Stars portfolio at $3.07 a share. The stock was Vertex Energy $VTNR.
Now we hit it just right and by July of 2014, the stock was trading at $8.34.
It was a whopping 174% gain!
What we saw was an undervalued stock become fairly valued… then overvalued in just a few months time. So we decided to exit.
We told everyone to sell…
But we had no idea what would happen next. Just look at the chart…
As you can see, the stock crumbled from July… where we said sell… to where it trades today.
Was it a bad company – no. But the stock got ahead of itself and by recognizing that, we were able to save investors thousands of dollars of potential losses (and lock in a nice gain)!
We’re not perfect… we don’t always top tick an exit… but we do our best to grab gains when we can… and this is a perfect example of making a tough decision that in the end made us money.
If you’re interested in learning more about our Penny Stock All-Stars premium service… and seeing more of the stocks were trading for profits… you can learn it all here.
Good trading…
Brian Kent
Penny Stock Research
Note: Brian Kent has been trading the markets for more than two decades and now writes and edits for PennyStockResearch.com. You can sign up for the penny stock research newsletter a trusted source for the truth about penny stocks! Sign up today and get a free research report – http://www.pennystockresearch.com/free-reports/.
Category: Penny Stocks
