Call for a San Jose Options Live Demo 800.862.2503 |
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Overview of Selling Techniques
Call for a San Jose Options Live Demo 800.862.2503 |
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 Introduction
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Understanding HOW and WHEN to sell your stock is just as important as How and When you buy it. Selling is the action that actually completes the transaction and converts your Stock Holding back into cash hopefully with a nice profit. RULE #1 - At NO TIME should you own a stock and NOT HAVE a standing Sell Order in place. Selling Strategies can be broken down into 2 main categories, both of which are equally important. They are: SELLING AT A LOSS to exit your position and protect your original capital from further loss (Known as a Protective Stop-Loss) and SELLING WITH A GAIN to exit your position and take a profit. Most traders and investors Buy a stock and hold on with a death grip many times watching their stock plummet 20% 30% 50% or more in price hoping it will go back up. Regardless of what time frame you wish to buy a stock for, the Stock-Signal-Pro approach is to TIME THE BUYING of a stock so that the likelihood of going positive is extremely high. Then place an immediate order to sell this stock if in fact it doesn't perform. Here is the 3-STEP process to follow after you buy a stock.  1. Place a Protective Stop-Loss Sell Order. 2. Move the Stop-Loss Sell Order to Break-Even as soon as possible. 3. Exit your posistion using one or more of the many Selling Strategies. |
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The Protective And Break-Even Stops
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The Protective Stop-Loss is a STANDING SELL ORDER that you place to exit your position immediately
after your order to buy a stock gets filled.
The Protective Stop Loss has one purpose and one purpose only, i.e. to PROTECT AGAINST CATASTROPHIC LOSS TO YOUR ACCOUNT. (Think of it this way... do you want to risk a pin-prick or getting your leg amputated?) As you should always wear a seat-belt in a car, a life-jacket in a boat, safety ropes when climbing a mountain, and a safety hat in a construction zone etc, etc, etc, you must ALWAYS USE A PROTECTIVE STOP-LOSS SELL ORDER in the stock market. The reason this concept has a high probability of working is that Stock-Signal-Pro signals you to buy at Key Pivot points where a Stock's price should move in your favor almost immediately. Therefore the likelihood of being STOPPED OUT by the stock going against you is low. If the unpredictability of Stock price movement takes over and the stock starts to move against you, you automatically exit the position with a SMALL LOSS rather than a much LARGER LOSS. Always Place a Protective Stop-Loss Sell Order Immediately After You Buy A Stock.  After you buy a stock and put in place your initial stop-loss YOUR FIRST AND FOREMOST GOAL is to move your stop-loss sell order to BREAK-EVEN STATUS.
The reason the Break-Even Stop-Loss is so important is that once you have it in place, you essentially have your money working for you in the stock market (virtually) RISK FREE. If the market turns against you and you get stopped out of your position WITHOUT A LOSS TO YOUR CAPTIAL. The TIMING was not correct and you got your money back to work with in a future trade. Stock-Signal-Pro calculates the ideal price to Adjust your Stop-Loss Sell Order to the Break-even level for each trade signal. Or you can go Break-Even once your stocks has moved at least 2 ½ percent from your buy price. |
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Taking Profits At 7%
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If you have bought your stock as a short-term trade (3-5+ days) you should consider
CAPTURING A 7% GAIN by using a limit order when the position moves towards that price level.
A 7% gain on any stock in less than 10 days is an excellent return. Many times a stock will make this move in only a couple of days and occasionally in only one day.  For instance if you bought 200 shares 7% equates to: 35.00->37.50 gain 2.5 points $500.00 50.00->53.50 gain 3.5 points $700.00 75.00->80.00 gain 5.0 points $1000.00 100.0->107.0 gain 7.0 points $1400.00Your Break-Even Stop-Loss is in place and within 10 days your stock rapidly climbs in price. When it appears it might move through the 7% price level, cancel your Break-Even Stop Loss and place a new Limit Order to sell at the 7% price above where the stock is currently trading. If the stock continues to climb higher your Limit Order will execute and you will exit the market with a profit. If the Stock starts to drift back down in price, cancel your Limit Sell Order and go back to your Break-Even Stop-Loss. Finally if your stock goes on a tear and shoots up to 10% 12%+ quickly, you can slide your Break-Even Stop Loss up in price to protect a 7% gain and continue to hold the stock. |
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Trailing Stop Below Congestion
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Quite often a stock will move up rapidly in price covering a lot of range and then get bogged down in a tight price range
just under some previous resistance level.
For instance, the stock made a quick move just days after you bought it and you are showing an 10% gain. You can see one or more LONG RANGE days on the chart. Now the stock seems to have hit some form of resistance which as slowed its upward advance and the price bar ranges have tightened and the volume has diminished. This is known as CONGESTION a temporary period where the stock is trading SIDEWAYS. What is happening is that the Buying and Selling force moves into a period of equilibrium.  One of two things will happen. The BUYING PRESSURE will overcome the SELLING PRESSURE and the stock will continue on to higher prices, or the SELLING PRESSURE will overcome the BUYING PRESSURE and the stock will break down and head south. The price zone formed by a CONGESTION period is a logical place to move your STOP-LOSS SELL ORDER below if you are a short term trader or medium term investor. |
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The Price/Volume Crescendo
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This my FAVORITE SELLING TECHNIQUE.
If you are holding a stock that has appreciated nicely and you are nearing the point you wish to sell, a Price Volume Crescendo offers you a perfect opportunity to capture a substantial profit above what you already have. A Price Volume/Crescendo can be described as an intermittent short term BUYING FRENZY that erupts for various reasons and drives the stock up to unsustainable highs over the course of several days. If you know how to recognize this type of price behavior you can adjust your selling strategy in order to take advantage of some extra points and squeeze just that much more profit from your investment before pulling the trigger. 
DISCLAIMER: Tips found on this page are not to
be construed as investing advice. Please consider these tips for
Paper Trading purposes only, and then develop your own style and make
your own trading decisions. |
© 2005 Stock-Software.com, All Rights Reserved.
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