When To Sell

This is a theme I have been getting quite a few PM's and emails about. When to sell. If you have been in the market for awhile you have heard, "its more important to know when to sell."

This is true to a certain extent. The reason I say, "to a certain exent," is if you make a profit you have done well. The real question is and one everyone wants to know, is when to sell at the top or how do you know when its done and time to sell. This is a theme that I get Pm's or emails about.

The answer is...... you don't know. I don't know. No one knows.

Not the answer most people want to hear. But we have tools to lead us into certain selling points. For the most part we use heavy resistance as a selling point. Most of the time we are going to see it pullback some at heavy resistance. If it blows through it then it can become a buy area. Watch volume with L2 around heavy resistance points. I have noted a few times that most traders that have been doing this awhile may sell some shares at heavy resistance to protect their gains. I personally sell around 1/3 to 1/2 and see if the other can run while I tighten up my stop loss. This stop loss, however will be to protect profits.

I advocate this method because it is a trading plan. When I buy, I already know when I will be selling at either the first sell point or what my stop loss is going to be. Thats all fine and dandy but the #1 reason most traders do not follow their plan is because of emotion. If it has ran up someone has said, "its going to a dollar." And because your greed when you add up how much that will be kicks and and you want to believe them so bad that you do believe them. The product is just too good. "To good to be true"-ever heard that saying.

Though you may have a plan, you throw it out the door for greed. If you are this kind of trader, enjoy SMC because chances you will lose it all and stop showing up here. I still see this all the time about a penny stock going to a dollar. How many actually do? Only a few and they are making nice revenues. How many have fell back into sub penny? Most of them cause they are diluting.

Many of you that have read my post know I write often about higher highs and higher lows. If we are getting higher highs and higher lows we are in an up trend. By moving your stop loss just under the higher low you protect yourself. The probelem is that many of the penny stocks can move down fast- always be ready. But letting it get past that higher low is a big no no. It may regroup and come back. But they usually make a big and long consolidation move before that and then get back into higher highs and higher lows.

The reverse of this is keeping a stock that is just moving down. We try and convince ourselfs that its going back anyday now. Or some other poster believes it going up and we want to believe them.

In penny stocks, I would rather make 10 good trades getting out with 30 to 50% than 1 trade that made a huge move. Because chances are that if I got into the 1 trade that made a huge move, I still have some shares riding and don't have to worry about losing anything. I am still going to sell the rest of the shares when I think the stock is done.

You may have a stock up 1000% but you havent made a penny until you sell. Read it again because you don't make money until you sell your shares. Personally, I don't have any problems selling and I often get out to soon. But most of the time if a stock makes another setup I get in near what I sold at, without all the displeasure of the pullback. I have seen my fair share of stocks pulling back with me still in them. I learned the hard way about selling. You have got to remember, these are penny stocks. Trade penny stocks, invest in blue chip stocks.

There are other tools that can be used to help determine when a top may occur. A hangmans candle often is telling us that the stock is done or a major pullback is coming.(If we see an hangmans candle and the stock moves past it within a few days then it has turned back bullish and can be good entry)

Fibs are used a lot to help determine when a stock is going to have a major pullback. Many people use the 100% and 161% fibs for selling points. If I have a fib and heavy resistance close together its a no brainer for me to exit the stock. Please dont ask me to give a class on Fibonacci. Fibs are basically an area of support and resistance. However, on blue sky stocks Fib expansion can pinpoint the area you want to look at to sell or buy.

Fibs are also great for bounce plays. If a stock has the bottom fall out put a fib on it and buy the 161% area and you will likely be rewarded. Be advised that using fibs take pratice and must be placed on the chart in a correct manner. You dont see fibs on my stock charts because I have used them so much I learned how to take my fingers and measure them and then look at support or resistance and determine where it might land. I also put up L2 and last sell trying to gauge it before pulling the trigger.

Here is my best advice if you are a new trader and learning the ins and outs of penny stocks. Just try to stay in the game and gain experience. Never play a penny stock unless it has some kind of technical setup and the security is not diluting. If you do those two things your winning percentage will go way up.

And we must realize the biggest fact in palying all stocks, wheter penny or blue chips. No one wins all the time- no one.

If you are now confused-good. You have a lot of homework to do. It takes time before that light bulb comes on. If I make it look easy then I am happy but remember, it took me a few years. I tried everything twice. Now look above and see where I said unless there is a technical set up and not diluting and you are way way ahead of the game..

 

Wow, thanks for all of that information, it really puts selling into a different perspective. I'm taking a fairly cautious approach to my foray into the world of stocks so any and all info is very much appreciated.

 

Definitely stay cautious Firelily99. My father sells mutual funds which should be even more stable than the stock market. His customers still take unexpected losses regularly.

 

I heard somewhere that you should sell when you start to see a decrease in your stock for a few days. This does not seem right to me because the market could go into a slump based on whatever circumstances, and then have an upswing the next week. Thanks for the information, this makes sense to me.

 

I am investing in the long term with a quite strict buy & hold strategy. When do I sell a stock? When the fundamentals of the company have changed so that I believe that I can invest that money into something which is more profitable than the current stock. Or in the case that due to price increase the % of a certain company has become way too big in my portfolio so I will sell in order to keep the balance.

 

Some great pointers and information thanks. I find that the most difficult part for me is to keep the emotion out and stick to my plan. Being disciplined is very important if you want to succeed. It is better to sell too early rather than selling too late.

 

Really outstanding information, it answered a lot of questions for me. so much goes into the buying and selling of stocks - too many people treat it like they are buying scratch off lottery tickets.

 

That is great advice. Combine that with a strategy where you don't sell everything at once, and you have a style that might just work.
It's impossible to accurately predict the exact peak price, so you want to start selling early but might want to keep a part of your position just in case it does go a lot higher.