There are two cases where you want to sell your stock.
- When the stock drops and you must take a loss and exit the trade
- When the stock goes up and you need to take profit
Case 1: When a stock drops to a certain price, you must take a loss and exit the trade:
This case is simple, you set a stop loss and exit the trade when it hits your stop loss. Stop loss percentage is really a personal preference. Some traders are willing to risk more while others want to keep their loss at a minimum. Of course, the more risk you put in, the more reward you should expect to gain from any stock you invested in. If that鈥檚 not the case, then you should not buy the stock in the first place.
Case 2: When the stock goes up and you need to take profit
There are many different ways that trader use to sell a stock and take profit. Here are a few selling strategies for swing traders.
a) Sell when the stock price reaches upper Bollinger Band
- Some technical traders聽use Bollinger Band as buying and selling signals.聽When stock prices cross above the lower Bollinger Band, they buy it.聽 They聽sell the stocks when their price聽crossover the upper Bollinger Band.
Let鈥檚 look at the chart example for POT.
The blue curves are the upper and lower Bollinger Bands, and we see 3 buys and 3 sells on this chart.
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b) Sell when technical indicator moves into overbought area- Many traders trigger their sell signal when technical indicators move into overbought area. For example, traders sell their stock when RSI move above 70 or stochastic move above 80.Let鈥檚 look at the same stock POT using stochastic.It also has 4 buys and 4 sells.
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c) Sell only when a stock hit your stop loss
- While approach 1 and 2 are good for profit taking, they miss out huge opportunities when a trend is strong enough that a stock keeps going higher. This is the approach that I am currently using. I only sell it when I believe a trend is running out and a pull back is likely or when a stock hit my stop loss.
- Let鈥檚 look at the following example, ANN stock chart.
If we used Bollinger Band or Stochastic Overbought as our selling signals, we would miss additional gains on the stock.
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