How does an investor know when to sell? What indicators trigger a “sell” for investors and what can we do to protect our profits when the trend turns decisively against us? What if we’ve earned a big paper profit and want to realize that gain? How do we know when to cash out?

No doubt, selling is much harder than buying. Many times over the last 17 years as an investor, I’ve nearly pulled my hair out for selling too early. There’s nothing worse than watching a security move up another 25% after you’ve jettisoned that stock. But many times I’ve also spared myself from additional losses as the stock continued to plunge.

Here’s what I’ve learned over the years to protect and maximize my investments…

I place a mental 15% stop loss on every security I purchase. This includes mutual funds and hedge funds. If I’m buying a stock 15% too early, then I’m wrong. More often than not, that same stock usually heads even lower. The same goes for funds, ETFs, etc. Very rarely, however, will that company post a major bottom after I’ve sold the position. If you buy a stock at $10, and it dives to $8.50, it’s time to sell. No emotion, no debate and no vacillation: you sell. You must minimize your losses.

A trailing stop is a different sort of animal than a stop loss. The latter is initiated either mentally or through a broker-dealer at the time of your purchase. You set the sell price if the investment falters. But a trailing-stop is a much harder discipline because it assumes, sometimes incorrectly, that a stock has completed its rally. If I buy a stock at $10, and it heads to $15, a subsequent decline of 15% will take the stock down to $12.75, compelling me to hit the sell bottom. But I don’t use trailing stops. That’s because we live in a highly volatile market environment where daily swings of 5% or more are considered normal. If you can’t handle volatility, then the stock market is not for you.

I don’t like using trailing stops because a stock can occasionally suffer a draw-down, or a decline of 10% or more from its peak. That’s especially true in volatile industries like mining and energy. If the story is still a good one for that investment, I’ll hold or even buy more of the same security. Usually, as a rule of thumb, I’ll continue to hold that stock; but if a fund or an index plunges more than 10%, I start to get nervous and usually press “eject.” A diversified mutual fund or index should not post a major drawdown, unlike a stock.

I also use moving averages to determine if a stock has broken down.

Though I rely more on fundamentals, technical analysis can support a stocks’ bigger picture. Usually, if an investment I own has declined 15% or more from its high and the story has changed because of management changes, bad earnings or just a change in that industry, it’s time to walk away. But again, I’m only a seller if the big picture has changed; otherwise, I don’t sell just because a stock has declined 15% or more from its high. If that were the case, I would have sold all of my mining stocks back in October 2006 when gold was correcting sharply. From those lows, my gold stocks have more than doubled 19 months later.

I sell a stock when the fundamentals turn bearish and the technical picture confirms that theory. Usually, I’ll dump a stock after its declined 15% -- if the story has changed and I’m no longer bullish. For mutual funds and index funds, I’m also a seller if a decline greater than 10% occurs. If you’re sector investing, however, you might want to widen that stop loss or trailing stop loss to 15% or more as volatility is much greater.

These are just broad guidelines to protecting your gains and minimizing your losses. As a rule, remember to limit your losses and let your winners ride. Also, limit portfolio trading to minimize trading costs and taxes.