Investing term
What is Sell rule?
Pre-committed conditions under which you'll exit a position — written before you buy.
A sell rule is a pre-written condition that tells you when to exit a position, decided before you buy and while you're calm. It might cover several triggers: the thesis being invalidated, a price target being reached, a time limit passing, or the position growing too large. The point is that the decision to sell is made in advance, not improvised under pressure.
It guards against the two emotional failures of selling — bailing out in panic when a good investment dips, and stubbornly refusing to cut a broken one out of pride or hope. Both are hard to resist in the moment, when fear and attachment cloud judgement. With the rule set in advance, the exit becomes mechanical rather than agonising: you're not deciding whether to sell, just executing a decision you already made when you could think clearly.
A sell rule pre-commits your exit conditions — invalidation, a price target, a time limit, or a position growing too large — set while calm. It turns selling, where emotion does most damage, into execution.
For example
Before buying, you write your sell rule: 'Sell if the thesis is invalidated, if it hits my $80 target, or if two years pass with no progress' — then follow it when a trigger fires.
Learn it by doing
That's Sell rule in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 13, Active Investing: Should You Even Bother?).
Try the free lesson →Why it matters to you
A sell rule matters because selling is where most investors' emotions do the most damage — and a rule made in advance is your defence against them. Panic-selling good investments and clinging to bad ones both stem from deciding in the heat of the moment; pre-committing to exit conditions removes that improvisation. It turns the hardest, most emotional decision in investing into the execution of a plan you set while calm, which is exactly when clear thinking is possible.
⚠ Overriding the rule in the moment
A sell rule only works if you honour it. The temptation, when a trigger fires, is to rationalise an exception — 'just one more quarter', 'it'll bounce back'. But the rule was written precisely for that emotional moment, when your judgement is least reliable. Overriding it reintroduces the panic and stubbornness the rule exists to prevent. Follow it, or you don't really have one.