What Should You do if Your Stock Price Rises?

If your stock price is rising, enjoy it!  You've made a good investment and should be happy with your results.  Investing requires a large amount of planning that should be done before you enter a position. Planning beforehand will allow you to know what to do when your stock market holdings reach a certain price.

Set a Goal

Know exactly at what price you're willing to sell your stock before the stock reaches that price.  Knowing when to take profits when investing can be difficult; it's hard to know where your stock will be one year or even twenty years from now.  Therefore, it is important to determine a price point at which you're no longer willing to hold the position. This could be a 100% return that you're looking for and willing to be patient to receive, or it could be just 5-10% that you want to return in just a few short months. It's hard to know where stock prices are headed without any insider news, which is, of course, illegal.  However, buying solid companies will insure that the stock price rises rather than falls, and taking a profit of any kind or size is always great.  In addition, you can consult with stock charts to ascertain the historical behavior of the particular equity and its maximum price valuations.

Use Trailing Stops

Trailing stops are a great way to get into a position with an exit strategy that changes with the stock price, rather than your emotions on your holdings. Trailing stops are essentially a percentage or dollar amount that you're willing to see a stock fall before you take a profit. For example, setting a 3 point stop loss on a $50 stock means that the stock could go straight up to $70 per share then fall 3 points to $67, where you would be automatically closed out of the trade for a profit of 34%. Trailing stops are great for momentum stocks because as soon as they lose the momentum of the market, you're out of the trade and counting your profits. For the long term, a 20% trailing stop would be a good number because a 20% drop is when a bear market technically begins. Over the long term, you'll be able to watch the stock go up, and you'll get out when the bear market occurs.

Find a Better Stock

Before selling your winner, try to find another stock that you think would make a good substitute and reallocate your money to that stock. Finding hot stocks is hard, but some stocks are simply too overpriced to consider holding for long periods of time.

Take a Little off the Table

Some investors like to sell half of their stock after a large rally to take some profits before the stock has a chance to drop. For example, if a stock runs up 30%, you could take half of your position off the table and realize a 30% gain on half your investment, or a 15% return overall. Even if the other half loses 30%, you've still locked in a profit and can exit with zero gain or loss on the second half of the position, leaving you with a modest 15% gain. Another strategy might be to take out your entire initial investment and only leave a number of shares equal to the amount you've profited. The only way you wouldn't make money in this circumstance is if the rest of your shares fall to zero, in which case it's probably a good thing you took your initial investment out of the stock.