Is it time to SELL your Stocks?

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"In the stock market, you absolutely can't win either unless you have a strong predetermined defense to protect yourself against large losses.  This may surprise you, but if you invest in stocks, you are going to make a never-ending number of mistakes in your selection and timing of purchase."

The above quotation was from How To Make Money in Stocks by William J. O'Neil.  It highlights the fact that anyone investing in the stock market, even seasoned fund managers and investors, is prone to commit mistakes.  This is why it's important to know when to let go and sell a stock.  This is part two of How to Make Money in Stocks.  Read the first part here.  

The author gave about 36 Prime Selling Pointers to guide us.  Here are some of those pointers:

  • Buying right solves half of your selling problems.  It allows you to sit through most normal corrections in the price of your stock.  The author recommends cutting losses at around 7-8%.
  • If after a stock's price is extended from a proper base, its price closes for a larger increase than on any previous up days, watch out! This move usually occurs at or very close to a stock's peak.
  • The ultimate top may occur on the heaviest volume day since the beginning of the advance.
  • Sell if a stock advance gets so active that it has a price run up for two or three weeks.  This is called climax (blow-off) top activity.
  • Big investors must sell when they have buyers to absorb their stock; therefore, consider selling if a stock runs up and then good news or a major publicity is released.
  • New highs on decreased or poor volume means there is temporarily no demand for the stock at that level and selling may soon overcome the stock.
  • After an advance, heavy volume without further upside price progress signals distribution (Dow Theory).
  • Tops will show arrows pointing down on a stocks' daily chart (closing on the low end of a trading days price range).
  • When it's exciting and obvious to everyone that a stock is going higher sell because it is too late.
  • If a stock that has been advancing rapidly is extended from its base and opens on a gap up in price, the advance is probably near its peak.
  • Sell if a stock's price breaks badly for several days and does not rally.
  • Consider selling if a stock takes off for a good advance over several weeks and then retraces all of that advance.
  • When quarterly earnings increases slow materially or earnings actually decline for two consecutive quarters, in most cases sell.
  • Consider selling if there is no confirming price strength by another important member of the same group.
  • Be careful of selling on bad news or rumors; they are usually of temporary influence. 
  • Try to avoid selling on shakeouts (below major price-support areas).
  • If you didn't sell early while the stock was still advancing, sell on the way down from the peak.  After the first break, some stocks may once pull back up in price.  
  • If a stock already has made an extended advance and suddenly makes its greatest one-day price drop since the beginning of the move, consider selling, but only if confirmed by other signals.
  • Sell if a stock closes the end of the week below a major long-term uptrend line or breaks a key price-support area on overwhelming volume.
  • The number of down days in price versus up days in price will change after a stock starts down.
  • Wait for a second confirmation of major changes in the general market and don't buy back stocks you sold just because they can be bought cheaper.
  • Learn from your past selling mistakes.  Do your own post-analysis.
  • Sell quickly before it becomes completely clear that a stock should be sold (ex: breaking an obvious support level).
  • In a few cases, you should sell if a stock hits its upper channel line.  Stocks surging above their upper channel lines should normally be sold.
  • Sell when your stock makes a new high in price if it's off a third or fourth stage base.
  • Sell on new price highs off a wide-and-loose, erratic chart price formation.
  • Sell on new highs if a stock has a weak base with much of the price work in the lower half of the base or below its 200-day moving average price line.
  • In some cases, sell if a stock breaks down on the largest weekly volume in its prior five years.
  • Some stocks can be sold when they are 70% to 100% above their 200-day moving average price line.
  • After a prolonged upswing, if a stock's 200-day moving average line turns into a downtrend, consider selling the stock.
  • Poor relative price strength can be a reason for selling.  Consider selling when a stock's relative strength on a scale from 1 to 99 drops below 70.

That completes the author's pointers on when to consider selling a stock.  I hope you learned something new from this post.  Before we end though, we'd like to highlight a concept that the author presented before enumerating these pointers.  He said that stock investing should be treated like a business.  Imagine yourself running a retail store (like a sari-sari store) but instead of buying commodities like oil, sugar, and soap, you are buying shares of a company.  If the demand for a certain commodity is low, consider selling the commodity at a discount, even if you incur a little loss.  This way you can free up your capital so you can buy more of the commodity that is selling fast.  And remember to not buy the low demand commodity again unless a real demand for it arises in the market.     

Up next on this series is pointers on when to be patient and HOLD a stock.  Don't forget to subscribe to our FREE mailing list to keep you updated or LIKE us on FacebookGet your free email updates.  Subscribe here.

Thank you and keep on attracting wealth, Money Magnets!

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