If we get stopped out of a stock, we should not repurchase it for some number of trading days. Jumping back into a stock we were just stopped out of does work once in a while, but probably 90% of the time we get stopped out, the price decline is not over.
1: always use sell stop orders to protect yourself from devastating price declines.
2: you can not buy a stock you were stopped out of for 10 trading days.
3: use trailing sell stop orders to secure profits.
In “Profitable Stock Trading – 5 Rules to Trade By” we discussed the first five rules that will help you gain stock market trading success. Here we finish up with the final five rules.
4: when your profit goals for a given trade are met, sell the stock, despite of its presumed long-term prospects.
5: the average daily trading volume for the 10 trading days prior to our buy date should be at least 100,000 shares.
Stock prices fall and rise for one reason only, supply and demand. If too many people want to sell a stock (more sellers than buyers – a large supply), the price goes down. That requires that the stock trades sufficient volume to allow us to execute our transaction without our order causing a major price move against us.
When we examine our stock charts (a stock trading technique, not a rule, thus a discussion for future articles), we’ll pick a price at which we will place a sell stop order as soon as our buy order is executed. Jumping back into a stock we were just stopped out of does work once in a while, but probably 90% of the time we get stopped out, the price decline is not over. If a stock has gone up in price more than expected or is in a parabolic rise, we should cancel our static sell stop order and place trailing sell stop orders to protect from price reversals. Trailing stop orders set a price a certain dollar or percentage amount under the current stock price. The sell stop trigger price increases as the stock price goes up.
If a stock has gone up in price more than expected or is in a parabolic rise, we should cancel our static sell stop order and place trailing sell stop orders to protect from price reversals. The sell stop trigger price increases as the stock price goes up.
Remember, we are trading stocks, not buying and holding them for years. This means we will sell some very good stocks once our profit goals are met, then possibly watch them go higher, maybe even much higher. If we absolutely love a stock and can not stand the thought of not owning it, we can establish a core long-term position then trade an additional amount of shares (our “trading” position), giving us the best of both worlds.
They are not trading techniques, which are in a whole different category and require skill and judgement to effectively buy and sell stocks at the optimal time and price. Stock trading techniques will be discussed in future articles.