JS-Masterclass #10: Sell Alerts / Sell Rules
In recent tutorials, we have covered different techniques and ways to identify low-risk entry points. We have talked about the perfect buy points and several entry patterns.
In this tutorial, we will discuss general rules for selling once we have entered a trade. Also, we will present a comprehensive list of warning signals which suggest to close a trade long before hitting the Stop-Loss.
1. Selling into strength
By far the best option for a swing-trader is to sell into strength. You will feel like a hero once you have mastered this technique!
Here are some guidelines for that:
a) Sell if you have achieved a gain which is a multiple of your risk. The minimum gain before selling into strength should be 2x the risk. Consider selling half and moving stop on remaining position to breakeven.
b) If your profit is more than your average gain and a multiple of your risk (generally 2-3x) consider trailing a stop or selling half and moving your stop up. You could also “backstop” your average gain or an amount you want to lock in.
c) The stock is extended and opens up on a gap; consider selling at least half or trail a tight stop.
2. Selling into weakness
a) The price hits pre-determined stop-loss – OUT… NO QUESTIONS! You will have to stick to this discipline before you will become a successful trader.
b) The stock closes below 20-day moving average, below your purchase price soon after a breakout from volatility contraction pattern; reduce shares when you have 3-4 days of lower lows without supportive action on day 3-4. This increases the odds of a failure.
c) Heavy selling with full retracement soon after low volume breakout. This is a bad signal – get out of the trade.
d) Key reversal on heavy volume when stock is extended – sell at least half.
3. Sell Alerts
Stocks will flash warning signals long before a big decline. Here are some to watch for:
a) Accelerated rate of advance (parabolic “blow-off” price action)
b) After extended move stock moves up 25-50% in 1-3 weeks (12 of 15 days up over 3 weeks)
c) Largest up day since beginning of move (look for reversal or churning over the next 1-4 trading days). This could mean that the stock is in its final leg up and almost exhausted.
d) Largest daily price spread since advance started
e) Largest weekly price spread since beginning of advance
f) Exhaustion gaps (after stock is extended – usually 2nd or 3rd gap )
g) New high on low volume which sometimes indicates the beginning of a phase 3
h) Heavy volume with little price progress (stalling action)
i) Drop below the 50-day moving average line on the heaviest daily volume since beginning of move
j) Largest one-day decline since beginning of move
k) Largest weekly decline on huge volume
l) Downwards action on large volume
In recent tutorials, we have covered different techniques and ways to identify low-risk entry points. We have talked about the perfect buy points and several entry patterns.
In this tutorial, we will discuss general rules for selling once we have entered a trade. Also, we will present a comprehensive list of warning signals which suggest to close a trade long before hitting the Stop-Loss.
1. Selling into strength
By far the best option for a swing-trader is to sell into strength. You will feel like a hero once you have mastered this technique!
Here are some guidelines for that:
a) Sell if you have achieved a gain which is a multiple of your risk. The minimum gain before selling into strength should be 2x the risk. Consider selling half and moving stop on remaining position to breakeven.
b) If your profit is more than your average gain and a multiple of your risk (generally 2-3x) consider trailing a stop or selling half and moving your stop up. You could also “backstop” your average gain or an amount you want to lock in.
c) The stock is extended and opens up on a gap; consider selling at least half or trail a tight stop.
2. Selling into weakness
a) The price hits pre-determined stop-loss – OUT… NO QUESTIONS! You will have to stick to this discipline before you will become a successful trader.
b) The stock closes below 20-day moving average, below your purchase price soon after a breakout from volatility contraction pattern; reduce shares when you have 3-4 days of lower lows without supportive action on day 3-4. This increases the odds of a failure.
c) Heavy selling with full retracement soon after low volume breakout. This is a bad signal – get out of the trade.
d) Key reversal on heavy volume when stock is extended – sell at least half.
3. Sell Alerts
Stocks will flash warning signals long before a big decline. Here are some to watch for:
a) Accelerated rate of advance (parabolic “blow-off” price action)
b) After extended move stock moves up 25-50% in 1-3 weeks (12 of 15 days up over 3 weeks)
c) Largest up day since beginning of move (look for reversal or churning over the next 1-4 trading days). This could mean that the stock is in its final leg up and almost exhausted.
d) Largest daily price spread since advance started
e) Largest weekly price spread since beginning of advance
f) Exhaustion gaps (after stock is extended – usually 2nd or 3rd gap )
g) New high on low volume which sometimes indicates the beginning of a phase 3
h) Heavy volume with little price progress (stalling action)
i) Drop below the 50-day moving average line on the heaviest daily volume since beginning of move
j) Largest one-day decline since beginning of move
k) Largest weekly decline on huge volume
l) Downwards action on large volume
Combing the BEST of two WORLD's: Cathie Wood & Mark Minervini
