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Selling is largely the most difficult part of the overall
investment/trading equation and if a market player does not have a
firm handle on a few sell guidelines which aid in making proper sell
decisions, profits will be hard to keep, if they are ever come by at
all. Below, are listed a few guidelines that will help limit the
number of errors which can too easily occur in this most delicate of
all trading areas.
Consider selling any short term stock recommendation that
languishes for 10 consecutive trading days without ever achieving its
upside target or violating its downside stop loss. We are in the
business
of moving in and out quickly and in
order to maintain a certain degree of liquidity, we must eliminate
any stock
which attempts to tie up our capital. You might call this a "time
stop," and it is an excellent tool to incorporate into any short-
term oriented trading program. In most cases, if a good part of the
expected move
has not occurred during the first 5 trading days, the chances are
good that
the stock will be "timed out" or even stopped out. You will find
that most of
winning plays do produce a large part of their move in the beginning.
This is not to say that one should not go the full distance with
each short-term stock pick (max. 10 days). We just felt this point
was worth being aware of.
Consider selling only 1/2 of any stock that catapults over
25% within 3 trading days. You must keep in mind the importance of
capitalizing on longer-term opportunities that offer the chance of
truly
spectacular price gains. Studies suggest that those stocks which
rocket 25% or more in less than 3 trading days are the ones that will
typically go on to be the market's big winners. We usually sell 1/2
of
our position in these quick 25% cases, and keep the remaining half
as long
as the stock stays above its break even point.
On short term trades, consider always selling 1/2 of your
current position whenever you can lock in a good profit, even if
you're looking for a larger gain. While it is true that many stocks
go on to score very large price gains, locking in a part of
your profits by selling 1/2 gives you an opportunity to profit in two
ways. The smaller "trading" profit will undoubtedly satisfy that
insatiable
urge to take home some money for NOW. While letting the
remaining half ride will satisfy the natural urge to really go for
the gusto,
just in case you happened to have purchased a big winner. This
is a strategy that will largely appeal to those who trade in larger
lot sizes, but we have found that it can work wonders for those who
initially buy as little as 200 shares. Just remember, should you
decide to put this strategy into practice, never allow your
remaining portion (1/2) to slip back into negative territory. The
beauty of this approach is that it is virtually a no lose situation.
Locking in the initial profit makes part of the "paper gain" real,
while the rest of your money either makes more money, or breaks even
at the very worst. This is a very important point. Remember it.
We have a blog set up at http://stocks2watch.blogspot.com for
stocks, self-improvement and success. Here you can post your
comments, thoughts and any plays you are considering or have made.
We would also appreciate it if you would support this site by
telling others about it and also
clicking on a few of the links where they appear.
Please have your friends do the same too.
Thanks and have a good day.
Larry
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