Stock Sell Signal

This article discusses stock sell signal. It's very difficult to know when to sell a stock. Very little research has been done on the subject, and advice from brokers is usually vague and confusing. Typical comments:
"Let's watch it one more day." "Can't tell it now; but you should get out on the next rally." "It's not doing well right now, but it's sure to come back over the long haul." If the stock you've bought has gone up, the two conflicting cliche's on Wall Street are: "Can't get hurt taking a profit," and "Let your profits run."
What to do instead: When it comes to evaluating an individual stock, you should look for one thing-failure. This sounds austere, but what to look for is very specific: A stock that tries to rally fails to make a new high.

How to identify failure: The stock must sell below the price level at which it had held in a previous "correction" (decline). If you were to look at this sequence visually on a stock chart, you would see a series of lower highs and lower lows. That type of action establishes failure. It defines the stock's trend as down, not up.
Sell! Put aside all hopes that the stock will stabilize or rally wildly or that it will come back if you hold it long enough. The market is telling you, in no uncertain terms, that something is wrong. You don't have to know what or why. That information frequently doesn't come out until the stock has tumbled a very long distance down. You've made an objective decision. Stick with it.

When to decide to sell: When the stock market is closed. That way, each little gyration won't emotionally affect your decision. After you've made an objective decision, use a protective stop order. How it works: Tell your broker to sell the stock automatically when it drops below a certain point. See stock sell signal for more information.
You can use stop orders effectively even if the stock rises. Each time the price advances, cancel the old stop order and enter a new one. One arbitrary rule: Set the stop order price at 10%, below the current market price.

Investors rarely receive guidance on getting out of a stock at the right time. Brokers, investment literature and even knowledgeable friends and associates with "tips" on when to buy are usually mute about when to sell. However, the right selling discipline is essential in order to preserve gains and stem losses. Professional traders always have a selling plan at the same time that they take a position in a stock-and so should you.
Signs that you need a selling strategy:
Your portfolio is cluttered with groups of securities bought for what appeared to be sound reasons (a "good story") some years ago but which are now well below your purchase price. Typical: Energy or personal-computer stocks. You are now "holding them for the long term" or until you can "get even" by selling them for the same price at which you bought them.

To Stock Sell Signal - Top

You have a paper profit in a stock that is now trading at a price well above what you expected it to achieve, but you're still holding on. Questions: What is the top? And what is your plan for getting out promptly?
Capital conservation basics:
Rule number one-The first time that a broker downgrades his recommendation of a stock that you've purchased, sell! Brokerage firms always rank stocks they have recommended, starting with the best (usually called highly recommended or some such term) through hold and even, finally, to sell.

The adventurers who call turns in the stock market for a living depend on a number of indicators to identify a major turn. Every serious investor, however, should make some regular assessment of when a major move is more or less likely. Reason: 80 % of the issues traded go with the overall market trend.
Fundamental rule: Market moves usually exhaust themselves after traveling a maximum 25% up or down from the 40-week moving average of the Dow Jones industrial average, Standard & Poor S 500 index, and the New York Stock Exchange composite index.
To calculate the moving average (usually called the "current mean" by professionals):

• Average the closing numbers on the index for the past 40 weeks.
• Each week, add the current number on the index and drop the earliest week's number. Then recalculate the 40-week average.
To read the results: The further the current average is from the current mean, the greater the chance that the market will shift direction.

Individual investor strategy: Keep the basic situation in view. Factor in what the forecasters are saying. Relate that to fundamental economic factors, especially interest rates, that affect the stock market. Make a personal judgment about the market trend. Use temporary fluctuations in the trend to execute strategy. Investors anticipating a major rise should buy during temporary drops, and vice versa.

Source: Consumer Information Center

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