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8/14/2019 How to Sell Stocks to Maximize Your Profits http://slidepdf.com/reader/full/how-to-sell-stocks-to-maximize-your-profits 1/14 How To Sell Stocks To Maximize Your Profits How to Sell Just like stocks flash signals before making huge gains, they can also show certain characteristics that indicate potential trouble. In this lesson, you'll learn to identify the warning signs of a weakening stock. #1. Market Direction Review the S&P 500, Nasdaq Composite and Dow Jones Industrials price and volume charts every day in Investor's Business Daily to spot when three to five or more days of distribution occur over a few weeks. History shows that this is typically when the general market will turn down into a correction and most stocks follow it down. You should be reducing positions and moving off margin. Don't buy stocks until you see a second confirmation of an attempted rally in a market index that has "followed through" with an increase in price of 2% or more on volume larger than average and larger than the day before. Read IBD's "The Big Picture" and "Investor's Corner" columns every day to gain  better insights into the market and investment skills. #2. Cutting Losses Short Cut all losses when a stock is 7% - 8% below your purchase price (no exceptions...there are risks in all stocks). IBD readers who followed this rule were able to protect their capital better than most other investors. Operate with a basic profit-and-loss plan. In a strong bull market sell and take most of your profits when up 25% to 30% and cut every loss short at 7% or 8%. Your very best performing stock, in some cases, can be held for a larger potential  profit. If you buy stocks in a tougher, whipsaw general market, maintain a 3-to-1 ratio by taking profits at +20% and cutting losses at 6% or 7%. Or take gains at +15% and cut losses at 3% to 5%. #3. Stock-Chart Analysis Use charts to improve your timing so you'll buy at the time where probability of an up move is greatest. If you buy exactly right, few of your stocks will decline 7% - 8% below your cost. Always sell all of a stock that has a climax top (where the stock has advanced for many months and suddenly races up for one or two weeks much faster than any  prior one- or two-week period or since the beginning of the stock's long move up). This occurred in most market leaders in March and April 2000.

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How To Sell Stocks To Maximize Your Profits

How to Sell

Just like stocks flash signals before making huge gains they can also show certaincharacteristics that indicate potential trouble In this lesson youll learn to identify thewarning signs of a weakening stock

1 Market Direction

bull Review the SampP 500 Nasdaq Composite and Dow Jones Industrials price andvolume charts every day in Investors Business Daily to spot when three to five or more days of distribution occur over a few weeks History shows that this istypically when the general market will turn down into a correction and moststocks follow it down You should be reducing positions and moving off margin

bull Dont buy stocks until you see a second confirmation of an attempted rally in amarket index that has followed through with an increase in price of 2 or moreon volume larger than average and larger than the day before

bull Read IBDs The Big Picture and Investors Corner columns every day to gain better insights into the market and investment skills

2 Cutting Losses Short

bull Cut all losses when a stock is 7 - 8 below your purchase price (noexceptionsthere are risks in all stocks) IBD readers who followed this rule wereable to protect their capital better than most other investors

bull Operate with a basic profit-and-loss plan In a strong bull market sell and takemost of your profits when up 25 to 30 and cut every loss short at 7 or 8Your very best performing stock in some cases can be held for a larger potential profit

bull If you buy stocks in a tougher whipsaw general market maintain a 3-to-1 ratio bytaking profits at +20 and cutting losses at 6 or 7 Or take gains at +15 andcut losses at 3 to 5

3 Stock-Chart Analysis

bull Use charts to improve your timing so youll buy at the time where probability of

an up move is greatest If you buy exactly right few of your stocks will decline7 - 8 below your cost

bull Always sell all of a stock that has a climax top (where the stock has advanced for many months and suddenly races up for one or two weeks much faster than any prior one- or two-week period or since the beginning of the stocks long move up)This occurred in most market leaders in March and April 2000

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bull Sell when your stock exceeds an upper channel line drawn across three price peaks over a period of many months on a weekly chart (available oninvestorscom)

bull Sell most stocks breaking out of a third- or fourth-stage base on the way up in price

bull

Sell if a stock has a long advance and drops below its 10-week moving averageline and stays below the line for many weeks unable to rallybull Recognize persistent heavy volume on the downside and analyze to see if the

stock is under major liquidation and needs to be sold

4 Rounding Out Sell Decisions

bull Sell if theres no confirming price strength by any other important stock within thesame industry group

bull Sell if two quarters of earnings per share show a significant slowdown in their percentage increase

bull

Sell most leading stocks whose Relative Price Strength Rating drops below 70bull Never buy a declining stock that looks cheap on the way down Never average

down And dont try to bottom fish Why try to catch a falling knifebull Plot on weekly price charts where you bought and sold your stocks Study

carefully and learn from your past mistakes so youll better take advantage of opportunities in the future

Reading Key Selling Indicators

Just like stocks flash signals before making huge gains they can also show certaincharacteristics that indicate potential trouble In this lesson youll learn to identify thewarning signs of a weakening stock

Sell Signals Arent Always Obvious

If sales growth starts to slow does it really mean trouble for a company

If the leading stock in an industry group sputters does it spell a similar fate for other stocks in the group

And must you always sell if earnings are disappointing

For investors these questions are just as challenging as finding the right stocks to buySometimes stocks can fool you They peak on seemingly the best days when financialmagazines rave about them and shareholders are bubbling with excitement

8142019 How to Sell Stocks to Maximize Your Profits

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But some of the same tools that indicate the potential for a stock to go up can also tellyou if a stock is headed down This lesson will help you isolate the most usefulfundamental indicators But keep in mind that a stocks price and volume action is alsovaluable in spotting sell signs Many times a stocks chart will reveal something wrongwith a stock much earlier than fundamental factors We discuss these technical sell

signals in Lesson 2 of this course

Finding Flaws In Company Fundamentals

If you want clues to a stocks decline you can basically take all the financial indicatorsthat drive a stock up mdash such as earnings growth sales growth and profit margins mdash andturn them upside down These are your red flags

bull A sharp slowdown in earnings growth in back-to-back quarters For example if acompanys earnings growth has been in the 100 range for several quarters its bad news when that slows down to 20 or 30 Wall Street has little patience

and will quickly turn its attention to other faster-growing companies You shouldalso pay attention to companies whose earnings or sales growth break a habitual pattern For example if a company had earnings growth over several quarters between 25 and 35 then reports three quarters of steady deceleration thiscould be a red flag Such subtle slowdowns in earnings or sales can sometimeslead to the company eventually missing earnings forecastsSignificant drops in other mainmdash should serve fundamentals mdash sales growth profit margins and return on equity as warning signs especially if the stock startshaving trouble making gains Check the Sales+Profit Margins+ROE Rating for any significant drops in this gauge

Industry Groups Tend To Move Together

When the majority of best-performing stocks in an industry fall sharply on heavy volumeand are unable to recover typically other stocks in the same industry could becomevulnerable

Flagging Leadership Is Cause For Concern

One of the best ways to tell if a stock might go higher is by how its performing alreadyWhen a stock no longer outperforms its peers its telling you the road will probably get bumpy You can tell exactly how a stock is performing with the Relative Price Strength(RS) Rating Your stock should stay above 80 and ideally above 90 If it falls below 70look out

Selling Clues From Institutional Investors

The buying activity by mutual funds and other institutional investors is a huge influenceon stock prices Just as its wise to buy stocks funds are buying you might in certaincases consider selling stocks the funds are selling This is where

8142019 How to Sell Stocks to Maximize Your Profits

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Stock Splits May Flood The Market

Stock splits are when a company increases its shares outstanding and the share price isadjusted accordingly For example XYZ Corp sets a 2-for-1 split of 100 million sharestrading at $50 each After a split there are twice as many shares or 200 million tradingat $25 Companies do this to lower the share price in hopes of drawing more investors

into the stock

But too many splits can have the opposite effect Adding shares can tilt the supply-demand equation because theres a bigger supply of shares to go around The stock pricecould fall Carefully watch any stock that has split more than once in the past 12 monthsConsider selling if a stock runs up 25 to 50 for one or two weeks on a stock splitHowever a few hyper-growth stocks have kept climbing despite more than one split ayear

Key Points To Remember

bull Consider selling a stock if it shows fundamental signs of weakness such as asteady deceleration in earnings or sales

bull Watch for weakness in the stocks industry group When the leading stocks in anindustry decline the other stocks in the group may typically go down too

bull If there are signs that mutual funds are consistently selling the stock you shouldconsider selling

bull Too many stock splits close together in time can push a stock lower

When To Sell Stocks To Take Profits

How do you tell if a stock is at the end of a major price advance In this lesson youlllearn about ways to recognize when a stock starts sputtering and lock in your profitsChart-reading skills are a key part of this education

When To Take A Profit

Lets say you bought a stock and youre watching it go up At what point do you call it a

day and take your profits

The sell signals discussed here and in other lessons can occur well before a stock has peaked So its important to learn to recognize critical sell signals If you regularly reviewthe characteristics of stocks that took a turn for the worse over time youll be able toquickly spot valid signals as soon as they occur

There are several simple selling strategies that have proven beneficial in helping youconsistently lock in profits

8142019 How to Sell Stocks to Maximize Your Profits

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Heres a simple one Generally stocks tend to move up roughly 20 to 25 after risingout of a base Then they may go through a period of consolidation when a stock seems togo nowhere for a number of weeks

A strategy that safeguards your profits is to sell after youve captured a 20 gain This isthe conservative approach to profit-taking that works like building blocks Once you

sell and take a 20 gain compounding it with other 20 profits taken during the year should net you very substantial gains overall This gets back to one of the basic tenets of investing The key to being really successful is to capitalize on your strongest stocks The20 profits will also outweigh any mistakes you make in stocks that start to take anosedive if you also cut losses at 8 (see Lesson 1 When To Sell Stocks To CutLosses) These two strategies alone could help you become quite successful in themarket

Theres an exception to this rule however If a stock races up 20 in one to four weeksout of a proper base it probably means it has plenty of fuel left and you should hang onto it It may be your best stock And always review the market conditions In a strongmarket you will see this situation often

The shorter the trip to the 20 level the stronger the stock The 95 best-performingstocks of 1996 and 1997 took just five weeks to surge 20 On average these stocksgained 421 Among these 95 stocks 21 jumped 20 within a mere week Those wenton to surge on average 484 In 1999 many of the best stocks took just one week to runup 20 mdash some did it in a mere three days

How To Read Sell Indications From Stock Charts

Often the most important sell indicator is the stocks price and volume action as shownon a chart Many times stocks break down their upward trends before any negative signsemerge from fundamentals such as earnings sales profit margins or return on equityThe following indicators can flag weakness in a stock and can be observed with the aid of IBD Charts

Volume Clues

If a stocks price falls persistently on heavy volume it usually signals a shift in professional investor sentiment in which sellers predominate making any price advancesmore difficult Another red flag is a stock making new price highs on lower or poor volume

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Price CluesThe number of consecutive down days in price vs up days will likely change andincrease once a stock begins falling from its top For example a stock will close lower four or five days followed by two or three days closing higher compared to an earlier pattern of four days up and then two or three down

Churning

After a substantial advance the stocks trading volume increases but its price doesntmove up much for several days This is called churning or heavy volume without further price progress

Relative Strength

A stock rises out of a base pattern (more on this in Lesson 7 of the Buying Stocks course)or runs up in price but the relative strength line does not go into new high ground or lagssubstantially This tells you the stock despite its advance isnt moving as powerfully asthe overall market Also consider selling if the stocks Relative Price Strength Ratingdrops below 70

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Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

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The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

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Exhaustion Gaps

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

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Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

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bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

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Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

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drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

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bull Sell when your stock exceeds an upper channel line drawn across three price peaks over a period of many months on a weekly chart (available oninvestorscom)

bull Sell most stocks breaking out of a third- or fourth-stage base on the way up in price

bull

Sell if a stock has a long advance and drops below its 10-week moving averageline and stays below the line for many weeks unable to rallybull Recognize persistent heavy volume on the downside and analyze to see if the

stock is under major liquidation and needs to be sold

4 Rounding Out Sell Decisions

bull Sell if theres no confirming price strength by any other important stock within thesame industry group

bull Sell if two quarters of earnings per share show a significant slowdown in their percentage increase

bull

Sell most leading stocks whose Relative Price Strength Rating drops below 70bull Never buy a declining stock that looks cheap on the way down Never average

down And dont try to bottom fish Why try to catch a falling knifebull Plot on weekly price charts where you bought and sold your stocks Study

carefully and learn from your past mistakes so youll better take advantage of opportunities in the future

Reading Key Selling Indicators

Just like stocks flash signals before making huge gains they can also show certaincharacteristics that indicate potential trouble In this lesson youll learn to identify thewarning signs of a weakening stock

Sell Signals Arent Always Obvious

If sales growth starts to slow does it really mean trouble for a company

If the leading stock in an industry group sputters does it spell a similar fate for other stocks in the group

And must you always sell if earnings are disappointing

For investors these questions are just as challenging as finding the right stocks to buySometimes stocks can fool you They peak on seemingly the best days when financialmagazines rave about them and shareholders are bubbling with excitement

8142019 How to Sell Stocks to Maximize Your Profits

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But some of the same tools that indicate the potential for a stock to go up can also tellyou if a stock is headed down This lesson will help you isolate the most usefulfundamental indicators But keep in mind that a stocks price and volume action is alsovaluable in spotting sell signs Many times a stocks chart will reveal something wrongwith a stock much earlier than fundamental factors We discuss these technical sell

signals in Lesson 2 of this course

Finding Flaws In Company Fundamentals

If you want clues to a stocks decline you can basically take all the financial indicatorsthat drive a stock up mdash such as earnings growth sales growth and profit margins mdash andturn them upside down These are your red flags

bull A sharp slowdown in earnings growth in back-to-back quarters For example if acompanys earnings growth has been in the 100 range for several quarters its bad news when that slows down to 20 or 30 Wall Street has little patience

and will quickly turn its attention to other faster-growing companies You shouldalso pay attention to companies whose earnings or sales growth break a habitual pattern For example if a company had earnings growth over several quarters between 25 and 35 then reports three quarters of steady deceleration thiscould be a red flag Such subtle slowdowns in earnings or sales can sometimeslead to the company eventually missing earnings forecastsSignificant drops in other mainmdash should serve fundamentals mdash sales growth profit margins and return on equity as warning signs especially if the stock startshaving trouble making gains Check the Sales+Profit Margins+ROE Rating for any significant drops in this gauge

Industry Groups Tend To Move Together

When the majority of best-performing stocks in an industry fall sharply on heavy volumeand are unable to recover typically other stocks in the same industry could becomevulnerable

Flagging Leadership Is Cause For Concern

One of the best ways to tell if a stock might go higher is by how its performing alreadyWhen a stock no longer outperforms its peers its telling you the road will probably get bumpy You can tell exactly how a stock is performing with the Relative Price Strength(RS) Rating Your stock should stay above 80 and ideally above 90 If it falls below 70look out

Selling Clues From Institutional Investors

The buying activity by mutual funds and other institutional investors is a huge influenceon stock prices Just as its wise to buy stocks funds are buying you might in certaincases consider selling stocks the funds are selling This is where

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Stock Splits May Flood The Market

Stock splits are when a company increases its shares outstanding and the share price isadjusted accordingly For example XYZ Corp sets a 2-for-1 split of 100 million sharestrading at $50 each After a split there are twice as many shares or 200 million tradingat $25 Companies do this to lower the share price in hopes of drawing more investors

into the stock

But too many splits can have the opposite effect Adding shares can tilt the supply-demand equation because theres a bigger supply of shares to go around The stock pricecould fall Carefully watch any stock that has split more than once in the past 12 monthsConsider selling if a stock runs up 25 to 50 for one or two weeks on a stock splitHowever a few hyper-growth stocks have kept climbing despite more than one split ayear

Key Points To Remember

bull Consider selling a stock if it shows fundamental signs of weakness such as asteady deceleration in earnings or sales

bull Watch for weakness in the stocks industry group When the leading stocks in anindustry decline the other stocks in the group may typically go down too

bull If there are signs that mutual funds are consistently selling the stock you shouldconsider selling

bull Too many stock splits close together in time can push a stock lower

When To Sell Stocks To Take Profits

How do you tell if a stock is at the end of a major price advance In this lesson youlllearn about ways to recognize when a stock starts sputtering and lock in your profitsChart-reading skills are a key part of this education

When To Take A Profit

Lets say you bought a stock and youre watching it go up At what point do you call it a

day and take your profits

The sell signals discussed here and in other lessons can occur well before a stock has peaked So its important to learn to recognize critical sell signals If you regularly reviewthe characteristics of stocks that took a turn for the worse over time youll be able toquickly spot valid signals as soon as they occur

There are several simple selling strategies that have proven beneficial in helping youconsistently lock in profits

8142019 How to Sell Stocks to Maximize Your Profits

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Heres a simple one Generally stocks tend to move up roughly 20 to 25 after risingout of a base Then they may go through a period of consolidation when a stock seems togo nowhere for a number of weeks

A strategy that safeguards your profits is to sell after youve captured a 20 gain This isthe conservative approach to profit-taking that works like building blocks Once you

sell and take a 20 gain compounding it with other 20 profits taken during the year should net you very substantial gains overall This gets back to one of the basic tenets of investing The key to being really successful is to capitalize on your strongest stocks The20 profits will also outweigh any mistakes you make in stocks that start to take anosedive if you also cut losses at 8 (see Lesson 1 When To Sell Stocks To CutLosses) These two strategies alone could help you become quite successful in themarket

Theres an exception to this rule however If a stock races up 20 in one to four weeksout of a proper base it probably means it has plenty of fuel left and you should hang onto it It may be your best stock And always review the market conditions In a strongmarket you will see this situation often

The shorter the trip to the 20 level the stronger the stock The 95 best-performingstocks of 1996 and 1997 took just five weeks to surge 20 On average these stocksgained 421 Among these 95 stocks 21 jumped 20 within a mere week Those wenton to surge on average 484 In 1999 many of the best stocks took just one week to runup 20 mdash some did it in a mere three days

How To Read Sell Indications From Stock Charts

Often the most important sell indicator is the stocks price and volume action as shownon a chart Many times stocks break down their upward trends before any negative signsemerge from fundamentals such as earnings sales profit margins or return on equityThe following indicators can flag weakness in a stock and can be observed with the aid of IBD Charts

Volume Clues

If a stocks price falls persistently on heavy volume it usually signals a shift in professional investor sentiment in which sellers predominate making any price advancesmore difficult Another red flag is a stock making new price highs on lower or poor volume

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Price CluesThe number of consecutive down days in price vs up days will likely change andincrease once a stock begins falling from its top For example a stock will close lower four or five days followed by two or three days closing higher compared to an earlier pattern of four days up and then two or three down

Churning

After a substantial advance the stocks trading volume increases but its price doesntmove up much for several days This is called churning or heavy volume without further price progress

Relative Strength

A stock rises out of a base pattern (more on this in Lesson 7 of the Buying Stocks course)or runs up in price but the relative strength line does not go into new high ground or lagssubstantially This tells you the stock despite its advance isnt moving as powerfully asthe overall market Also consider selling if the stocks Relative Price Strength Ratingdrops below 70

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Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

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The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

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Exhaustion Gaps

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

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Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

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bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

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Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

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drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 3: How to Sell Stocks to Maximize Your Profits

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But some of the same tools that indicate the potential for a stock to go up can also tellyou if a stock is headed down This lesson will help you isolate the most usefulfundamental indicators But keep in mind that a stocks price and volume action is alsovaluable in spotting sell signs Many times a stocks chart will reveal something wrongwith a stock much earlier than fundamental factors We discuss these technical sell

signals in Lesson 2 of this course

Finding Flaws In Company Fundamentals

If you want clues to a stocks decline you can basically take all the financial indicatorsthat drive a stock up mdash such as earnings growth sales growth and profit margins mdash andturn them upside down These are your red flags

bull A sharp slowdown in earnings growth in back-to-back quarters For example if acompanys earnings growth has been in the 100 range for several quarters its bad news when that slows down to 20 or 30 Wall Street has little patience

and will quickly turn its attention to other faster-growing companies You shouldalso pay attention to companies whose earnings or sales growth break a habitual pattern For example if a company had earnings growth over several quarters between 25 and 35 then reports three quarters of steady deceleration thiscould be a red flag Such subtle slowdowns in earnings or sales can sometimeslead to the company eventually missing earnings forecastsSignificant drops in other mainmdash should serve fundamentals mdash sales growth profit margins and return on equity as warning signs especially if the stock startshaving trouble making gains Check the Sales+Profit Margins+ROE Rating for any significant drops in this gauge

Industry Groups Tend To Move Together

When the majority of best-performing stocks in an industry fall sharply on heavy volumeand are unable to recover typically other stocks in the same industry could becomevulnerable

Flagging Leadership Is Cause For Concern

One of the best ways to tell if a stock might go higher is by how its performing alreadyWhen a stock no longer outperforms its peers its telling you the road will probably get bumpy You can tell exactly how a stock is performing with the Relative Price Strength(RS) Rating Your stock should stay above 80 and ideally above 90 If it falls below 70look out

Selling Clues From Institutional Investors

The buying activity by mutual funds and other institutional investors is a huge influenceon stock prices Just as its wise to buy stocks funds are buying you might in certaincases consider selling stocks the funds are selling This is where

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Stock Splits May Flood The Market

Stock splits are when a company increases its shares outstanding and the share price isadjusted accordingly For example XYZ Corp sets a 2-for-1 split of 100 million sharestrading at $50 each After a split there are twice as many shares or 200 million tradingat $25 Companies do this to lower the share price in hopes of drawing more investors

into the stock

But too many splits can have the opposite effect Adding shares can tilt the supply-demand equation because theres a bigger supply of shares to go around The stock pricecould fall Carefully watch any stock that has split more than once in the past 12 monthsConsider selling if a stock runs up 25 to 50 for one or two weeks on a stock splitHowever a few hyper-growth stocks have kept climbing despite more than one split ayear

Key Points To Remember

bull Consider selling a stock if it shows fundamental signs of weakness such as asteady deceleration in earnings or sales

bull Watch for weakness in the stocks industry group When the leading stocks in anindustry decline the other stocks in the group may typically go down too

bull If there are signs that mutual funds are consistently selling the stock you shouldconsider selling

bull Too many stock splits close together in time can push a stock lower

When To Sell Stocks To Take Profits

How do you tell if a stock is at the end of a major price advance In this lesson youlllearn about ways to recognize when a stock starts sputtering and lock in your profitsChart-reading skills are a key part of this education

When To Take A Profit

Lets say you bought a stock and youre watching it go up At what point do you call it a

day and take your profits

The sell signals discussed here and in other lessons can occur well before a stock has peaked So its important to learn to recognize critical sell signals If you regularly reviewthe characteristics of stocks that took a turn for the worse over time youll be able toquickly spot valid signals as soon as they occur

There are several simple selling strategies that have proven beneficial in helping youconsistently lock in profits

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Heres a simple one Generally stocks tend to move up roughly 20 to 25 after risingout of a base Then they may go through a period of consolidation when a stock seems togo nowhere for a number of weeks

A strategy that safeguards your profits is to sell after youve captured a 20 gain This isthe conservative approach to profit-taking that works like building blocks Once you

sell and take a 20 gain compounding it with other 20 profits taken during the year should net you very substantial gains overall This gets back to one of the basic tenets of investing The key to being really successful is to capitalize on your strongest stocks The20 profits will also outweigh any mistakes you make in stocks that start to take anosedive if you also cut losses at 8 (see Lesson 1 When To Sell Stocks To CutLosses) These two strategies alone could help you become quite successful in themarket

Theres an exception to this rule however If a stock races up 20 in one to four weeksout of a proper base it probably means it has plenty of fuel left and you should hang onto it It may be your best stock And always review the market conditions In a strongmarket you will see this situation often

The shorter the trip to the 20 level the stronger the stock The 95 best-performingstocks of 1996 and 1997 took just five weeks to surge 20 On average these stocksgained 421 Among these 95 stocks 21 jumped 20 within a mere week Those wenton to surge on average 484 In 1999 many of the best stocks took just one week to runup 20 mdash some did it in a mere three days

How To Read Sell Indications From Stock Charts

Often the most important sell indicator is the stocks price and volume action as shownon a chart Many times stocks break down their upward trends before any negative signsemerge from fundamentals such as earnings sales profit margins or return on equityThe following indicators can flag weakness in a stock and can be observed with the aid of IBD Charts

Volume Clues

If a stocks price falls persistently on heavy volume it usually signals a shift in professional investor sentiment in which sellers predominate making any price advancesmore difficult Another red flag is a stock making new price highs on lower or poor volume

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Price CluesThe number of consecutive down days in price vs up days will likely change andincrease once a stock begins falling from its top For example a stock will close lower four or five days followed by two or three days closing higher compared to an earlier pattern of four days up and then two or three down

Churning

After a substantial advance the stocks trading volume increases but its price doesntmove up much for several days This is called churning or heavy volume without further price progress

Relative Strength

A stock rises out of a base pattern (more on this in Lesson 7 of the Buying Stocks course)or runs up in price but the relative strength line does not go into new high ground or lagssubstantially This tells you the stock despite its advance isnt moving as powerfully asthe overall market Also consider selling if the stocks Relative Price Strength Ratingdrops below 70

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Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

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The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

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Exhaustion Gaps

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

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Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

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bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

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Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 4: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 414

Stock Splits May Flood The Market

Stock splits are when a company increases its shares outstanding and the share price isadjusted accordingly For example XYZ Corp sets a 2-for-1 split of 100 million sharestrading at $50 each After a split there are twice as many shares or 200 million tradingat $25 Companies do this to lower the share price in hopes of drawing more investors

into the stock

But too many splits can have the opposite effect Adding shares can tilt the supply-demand equation because theres a bigger supply of shares to go around The stock pricecould fall Carefully watch any stock that has split more than once in the past 12 monthsConsider selling if a stock runs up 25 to 50 for one or two weeks on a stock splitHowever a few hyper-growth stocks have kept climbing despite more than one split ayear

Key Points To Remember

bull Consider selling a stock if it shows fundamental signs of weakness such as asteady deceleration in earnings or sales

bull Watch for weakness in the stocks industry group When the leading stocks in anindustry decline the other stocks in the group may typically go down too

bull If there are signs that mutual funds are consistently selling the stock you shouldconsider selling

bull Too many stock splits close together in time can push a stock lower

When To Sell Stocks To Take Profits

How do you tell if a stock is at the end of a major price advance In this lesson youlllearn about ways to recognize when a stock starts sputtering and lock in your profitsChart-reading skills are a key part of this education

When To Take A Profit

Lets say you bought a stock and youre watching it go up At what point do you call it a

day and take your profits

The sell signals discussed here and in other lessons can occur well before a stock has peaked So its important to learn to recognize critical sell signals If you regularly reviewthe characteristics of stocks that took a turn for the worse over time youll be able toquickly spot valid signals as soon as they occur

There are several simple selling strategies that have proven beneficial in helping youconsistently lock in profits

8142019 How to Sell Stocks to Maximize Your Profits

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Heres a simple one Generally stocks tend to move up roughly 20 to 25 after risingout of a base Then they may go through a period of consolidation when a stock seems togo nowhere for a number of weeks

A strategy that safeguards your profits is to sell after youve captured a 20 gain This isthe conservative approach to profit-taking that works like building blocks Once you

sell and take a 20 gain compounding it with other 20 profits taken during the year should net you very substantial gains overall This gets back to one of the basic tenets of investing The key to being really successful is to capitalize on your strongest stocks The20 profits will also outweigh any mistakes you make in stocks that start to take anosedive if you also cut losses at 8 (see Lesson 1 When To Sell Stocks To CutLosses) These two strategies alone could help you become quite successful in themarket

Theres an exception to this rule however If a stock races up 20 in one to four weeksout of a proper base it probably means it has plenty of fuel left and you should hang onto it It may be your best stock And always review the market conditions In a strongmarket you will see this situation often

The shorter the trip to the 20 level the stronger the stock The 95 best-performingstocks of 1996 and 1997 took just five weeks to surge 20 On average these stocksgained 421 Among these 95 stocks 21 jumped 20 within a mere week Those wenton to surge on average 484 In 1999 many of the best stocks took just one week to runup 20 mdash some did it in a mere three days

How To Read Sell Indications From Stock Charts

Often the most important sell indicator is the stocks price and volume action as shownon a chart Many times stocks break down their upward trends before any negative signsemerge from fundamentals such as earnings sales profit margins or return on equityThe following indicators can flag weakness in a stock and can be observed with the aid of IBD Charts

Volume Clues

If a stocks price falls persistently on heavy volume it usually signals a shift in professional investor sentiment in which sellers predominate making any price advancesmore difficult Another red flag is a stock making new price highs on lower or poor volume

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 614

Price CluesThe number of consecutive down days in price vs up days will likely change andincrease once a stock begins falling from its top For example a stock will close lower four or five days followed by two or three days closing higher compared to an earlier pattern of four days up and then two or three down

Churning

After a substantial advance the stocks trading volume increases but its price doesntmove up much for several days This is called churning or heavy volume without further price progress

Relative Strength

A stock rises out of a base pattern (more on this in Lesson 7 of the Buying Stocks course)or runs up in price but the relative strength line does not go into new high ground or lagssubstantially This tells you the stock despite its advance isnt moving as powerfully asthe overall market Also consider selling if the stocks Relative Price Strength Ratingdrops below 70

8142019 How to Sell Stocks to Maximize Your Profits

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Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

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The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 914

Exhaustion Gaps

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

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Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 5: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 514

Heres a simple one Generally stocks tend to move up roughly 20 to 25 after risingout of a base Then they may go through a period of consolidation when a stock seems togo nowhere for a number of weeks

A strategy that safeguards your profits is to sell after youve captured a 20 gain This isthe conservative approach to profit-taking that works like building blocks Once you

sell and take a 20 gain compounding it with other 20 profits taken during the year should net you very substantial gains overall This gets back to one of the basic tenets of investing The key to being really successful is to capitalize on your strongest stocks The20 profits will also outweigh any mistakes you make in stocks that start to take anosedive if you also cut losses at 8 (see Lesson 1 When To Sell Stocks To CutLosses) These two strategies alone could help you become quite successful in themarket

Theres an exception to this rule however If a stock races up 20 in one to four weeksout of a proper base it probably means it has plenty of fuel left and you should hang onto it It may be your best stock And always review the market conditions In a strongmarket you will see this situation often

The shorter the trip to the 20 level the stronger the stock The 95 best-performingstocks of 1996 and 1997 took just five weeks to surge 20 On average these stocksgained 421 Among these 95 stocks 21 jumped 20 within a mere week Those wenton to surge on average 484 In 1999 many of the best stocks took just one week to runup 20 mdash some did it in a mere three days

How To Read Sell Indications From Stock Charts

Often the most important sell indicator is the stocks price and volume action as shownon a chart Many times stocks break down their upward trends before any negative signsemerge from fundamentals such as earnings sales profit margins or return on equityThe following indicators can flag weakness in a stock and can be observed with the aid of IBD Charts

Volume Clues

If a stocks price falls persistently on heavy volume it usually signals a shift in professional investor sentiment in which sellers predominate making any price advancesmore difficult Another red flag is a stock making new price highs on lower or poor volume

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 614

Price CluesThe number of consecutive down days in price vs up days will likely change andincrease once a stock begins falling from its top For example a stock will close lower four or five days followed by two or three days closing higher compared to an earlier pattern of four days up and then two or three down

Churning

After a substantial advance the stocks trading volume increases but its price doesntmove up much for several days This is called churning or heavy volume without further price progress

Relative Strength

A stock rises out of a base pattern (more on this in Lesson 7 of the Buying Stocks course)or runs up in price but the relative strength line does not go into new high ground or lagssubstantially This tells you the stock despite its advance isnt moving as powerfully asthe overall market Also consider selling if the stocks Relative Price Strength Ratingdrops below 70

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 714

Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

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httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 814

The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 914

Exhaustion Gaps

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

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Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

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drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 6: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

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Price CluesThe number of consecutive down days in price vs up days will likely change andincrease once a stock begins falling from its top For example a stock will close lower four or five days followed by two or three days closing higher compared to an earlier pattern of four days up and then two or three down

Churning

After a substantial advance the stocks trading volume increases but its price doesntmove up much for several days This is called churning or heavy volume without further price progress

Relative Strength

A stock rises out of a base pattern (more on this in Lesson 7 of the Buying Stocks course)or runs up in price but the relative strength line does not go into new high ground or lagssubstantially This tells you the stock despite its advance isnt moving as powerfully asthe overall market Also consider selling if the stocks Relative Price Strength Ratingdrops below 70

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Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

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The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

8142019 How to Sell Stocks to Maximize Your Profits

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Exhaustion Gaps

8142019 How to Sell Stocks to Maximize Your Profits

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

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Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

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bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

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Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 7: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 714

Moving Average Lines

Pay close attention if the stocks price closes below the 50-day moving average The 50-day moving average is generally regarded as a stocks possible price support level Itmay not mean much when a stock dips below this level but when it closes several weeks below the 50-day line unable to rally it suggests investors are abandoning the stockAlso worrisome is a 200-day line that turns down

Weak Breakouts

8142019 How to Sell Stocks to Maximize Your Profits

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The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 914

Exhaustion Gaps

8142019 How to Sell Stocks to Maximize Your Profits

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Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 8: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 814

The stock breaks out of a basing chart pattern but weekly volume is less than the week before or volume is less than 50 above the stocks average over the past 50-days (Theaverage volume is illustrated by the line moving across the volume bars) This indicateslukewarm interest at a pivotal point for the stock and it could later become a failed breakout

Climax Tops

The stock after a strong run-up for several months reaches a climax top in which the price suddenly goesup even faster mdash 25 to 50 or more on heavy volume in a couple of weeks The price spread for theweek will be greater than on any prior week since the beginning of the stocks major move Sometimes thisrun will culminate with the stocks largest single-day advance since it began moving up As the nameimplies this is a situation when a buying spree in a stock becomes too obvious and everyone is excited bythe price action When its obvious and exciting its too late mdash sell into the euphoria

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 914

Exhaustion Gaps

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1014

Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 9: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 914

Exhaustion Gaps

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1014

Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 10: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1014

Some climax runs will end with an exhaustion gap which happens when a stock that has been advancingrapidly and is greatly extended from its base opens at a price above the prior days highest level Thisusually indicates the final stage of its move mdash one final burst of buying before a stock eases backHowever when this happens close to the breakout it is called a breakaway gain and it can actually be asign of strength Qualcomm JDS Uniphase Veritas Software and other solid stocks of 1999 experiencedthis type of action

Late-Stage Bases

As a stock advances it builds several bases The third or fourth base however is more prone to a declineThis is common among leading stocks During the first base the stock demonstrates inherent strength butfew investors notice it When the second base forms more investors notice it By the time the third or fourth base forms however almost everybody notices it including most of Wall Street as well as MainStreet That oddly enough is historically the time when the stock is most likely to sputter It happens about80 of the time frequently in combination with a decline in the overall market If the stock rebounds after dropping sharply and below the lowest price level of the failed late-stage base a new base may later beformed And you can in some cases begin counting new bases all over again after having undergone themajor shakeout An Investors Corner article explains this concept in greater detail

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 11: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1114

Learn To Interpret The Market

One of the most important selling rules applies not to individual stocks but to the market as a whole Youmay be right about your stocks but if youre wrong in your assessment of the general market your stockswill suffer During a market decline even good stocks have a hard time swimming against the marketscurrent Typically three out of four stocks go down in a declining market

The market always begins a downturn with a series of distribution days in which selling predominatesOver the course of a few weeks at least one of the major market indexes (the Dow Jones IndustrialAverage Standard amp Poors 500 Index or the Nasdaq Composite Index) closes lower or stalls several timeson higher trading volume than the prior day This is another example of churning and every major marketdownturn has begun with one such episode

Read an excerpt from our CAN SLIMtrade course on market tops amp bottoms

Click for full page image

Also during weakening markets the leading stocks (those that have led the markets uptrend) typically startto falter

When the market enters a confirmed downturn after four or five days of clear distribution in a marketindex youre better off selling some of your stocks and raising some cash Get off margin (thats when you borrow from your broker to buys stocks) at once Sell your worst performing stocks first Of course youllneed to keep watching the major market averages to identify the markets next turn You may see themarket rally for a few days only to falter Learn to recognize a valid market upturn so you arent misledAlways regard the 8 Sell Rule (selling any stock that falls 8 below your purchase price) as your safetynet particularly in market declines Track signs of weakness in both your stocks as well as the general

marketKey Points To Remember

bull A simple clear-cut strategy is to sell after your stock has gained 25 unless the stock has goneup 20 in just one to three weeks

bull Stock charts are especially helpful in spotting signs of weakness in stocks often providing cluesmuch earlier than any fundamental indicators show

8142019 How to Sell Stocks to Maximize Your Profits

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bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 12: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1214

bull Look for climax runs exhaustion gaps failed breakouts significant violations of the 50-daymoving average and other characteristics of a weakening stock

bull Remember to check the overall market If the market comes under distribution and weakens your stocks will have a hard time making any further advances

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks A rule- based selling strategy can help you avoid heavy losses and preserve your portfolio This lesson explains

how to sell when a stock selection doesnt pan out

Know When To Fold Em

Nobodys right all the time in the market not even veteran market professionals But as the famous investor Bernard Baruch once said Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly

Being a successful investor is just as much about limiting losses as it is about riding a winning stockDownturns are a part of life in the market and you must act decisively to shield yourself from excessivelosses If your stock selection doesnt work out and youre faced with a loss dont let your pride stop youfrom admitting youve made a mistake and acting quickly Cut your losses early and move on You mustmake rational decisions instead of trying to rationalize your way out of a costly mistake

Its not just your own personal opinions that can be wrong Analysts or market commentators can be just aserroneous and basing your decisions on their opinions can often lead to disastrous results Investors often buy loser stocks justifying their decision with remarks like All these Wall Street analysts are saying greatthings about this company or This technology is the greatest thing since sliced bread The market doesntrealize it yet but its bound to become a household item Famous last words

Cut Your Losses EarlyThe first rule is sell any stock that falls 8 below your purchase price Why 8 Because research showsstocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the Using Stock Charts To Round Out Stock Selection lesson of thestock buying course) rarely will retreat 8 If they do theres something wrong with them

You may think a stock is due to rebound But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV No excuses no alibis You may want to selleven before an 8 loss if you see other signs of weakness in a stock (well explain these throughout thiscourse)

This rule emphasizes the importance of buying at the right time If you dont and you buy a stock that isoverextended (thats reaching the end of its climb) chances are it will hit the 8 sell level as it goesthrough a normal pullback Make no exceptions to the rule The best stocks will always give you other

opportunities to buy Heres another way to look at it Once a stock falls 8 below your cost does it stilllook attractive Is it still among the best stocks Probably not Theres no guarantee that it will go back upand you need to protect yourself

The bigger the fall the harder it is to recover Say you bought a stock at $100 a share It falls 20 to $80To get back to $100 the stock has to make a 25 gain Another example The stock plummets 50 to $50a share It would take a 100 jump to get it back to $100 mdash and how often do you buy a stock thatdoubles And if it does how many weeks months or even years does it take to get there Wouldnt yourather cut your loss early and free up money to purchase another stock with better chances of doubling

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 13: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1314

Of course it could happen that you sell a stock that falls 8 and then watch it go up afterward But youhave to think of the 8 sell rule as your insurance policy against catastrophic losses The rule will in effectlimit any losses on your portfolio to no worse than 8

Nevertheless if youve bought a fundamentally sound stock at the right point (explained in the stock buying lessons) it will rarely plunge 8 immediately Buying exactly right will solve half your sellingquestions

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio

As you can see even if you had made these seven trades over a period of time mdash and taken losses on fiveof them mdash you would still come out ahead by more than $3700 Thats because the two stocks that workedout resulted in a combined profit of $5500 And the five losses mdash all capped at 8 except for one thatwas cut early at 7 mdash added up to $1569

You see the point It would take several 8 losses to wipe out the profit from just one or two good stocks

Stock Shares CostShare Sell Price ProfitLoss ProfitLoss

A 100 $50 $46 -$400 -8

B 100 $43 $40 -$300 -7

C 100 $57 $98 $4100 +72

D 50 $24 $22 -$100 -8

E 30 $110 $101 -$279 -8

F 70 $85 $78 -$490 -8

G 100 $65 $79 $1400 +22

Total $3731

The 8 Rule Applies Only To Losses From The Purchase Price

The 8 sell rule however applies only to drops below your purchase price and does not apply to situations

where youve already made gains on a stock A part of being a stock investor is weathering temporary sell-offs that may be 8 10 or even larger The next two lessons will teach you how to in most cases tell thedifference between one such dip and a real problem

Dealing With Hyperactive Stocks

About 40 of stocks pull back close to their buy point for one or two days This is not the time to panicand sell especially if the stock was purchased as it came out of a sound basing area at the right buy point(For more on this check the chart-reading lesson of the stock buying course) As long as the price doesnt

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates

Page 14: How to Sell Stocks to Maximize Your Profits

8142019 How to Sell Stocks to Maximize Your Profits

httpslidepdfcomreaderfullhow-to-sell-stocks-to-maximize-your-profits 1414

drop 8 below the point at which you bought you should in most cases hang on through the first pullback

Watch how the stock performs relative to the general market and its industry group peers Often a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back This is normal On the other hand if the market has been rallying over several days and your stock hasnt come to life then this might be a warning sign even if the stock hasnt dropped 8 below your

purchase price

Another thing to ponder Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatileincreasing the chance of slipping 8 particularly if you buy them extended in price beyond the exact buy point

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders which are instructions to brokers to sell a stock at a predetermined price This might be useful for those who cant watch their stocks closely or for those of uswho may be less decisive

Also tax considerations and brokers commissions should rarely enter into your sell decisions Youshouldnt always hold a stock for more than a year just because youd pay a lower tax rate on the profit Andwith lower commissions today they should not be the most important factor Your main goal should be to

obtain and nail down gains

Holding Losers In Your Portfolio

You may be looking at your portfolio and seeing theres some stocks already 8 below your purchase price mdash or worse Should you sell them Probably unless a stock is showing strong signs of recovery such as arising stock price on solid trading volume and improving earnings Even then there is no guarantee it willrebound and the chances are it could go even lower The greater the loss the greater the chance of itdeveloping into a really serious loss

Key Points To Remember

bull The first sell rule is to get rid of any stock that falls 8 below your purchase price

bull Its critical to follow this loss-cutting rule regardless of how highly you value a stock Personalopinions get in the way of smart selling decisions

bull The larger the loss the higher the recovery you need to get back to the break-even level (A 50loss on a $100 stock for example requires a 100 gain to get back to $100)

bull Strong stocks sometimes initially retreat close to their buy point (as determined by the stockschart pattern) This doesnt necessarily mean you have to sell unless the stock goes 8 below the purchase price

bull Avoid making sell decisions based on tax concerns or commission rates