Selling Rules

Stan Weinstein outlines the following steps for selling stocks in his book  Secrets For Profiting in Bull and Bear Markets.

The Don't List

1. Don't Sell for tax reasons.
2. Don't base your selling decision on how much the stock is yielding.
3. Don't hold onto a stock because the price/earnings (P/E) ratio is low.
4. Don't sell a stock simply because the P/E is too high.
5. Don't average down in a negative situation. Professionals average up, not down.
6. Don't refuse to sell because the overall market trend is bullish.
7. Don't wait for the next rally to sell.
8. Don't hold onto a stock simply because it is of high quality. 

The Do List

Use Protective Stop-Loss orders

Increased volatility in the market makes this tactic very important. Swings occur very quickly and a stop-loss can protect your position if a stock moves down quickly. A stop-loss sets the price at which you want to place a sell order. For example, if a stock is selling at $30 and you set your stop-loss at $25, the stock won't sell unless the prices moves to $25 or lower. I find stop-loss orders bring me peace of mind because I can go about my day without worrying about whether I am protected. There is no need to watch the market all day.

 

Setting the Stop-Loss Order

Set the initial Stop-Loss when entering position

When buying a stock, set your initial stop-loss order amount. You should always know your exit point when entering into a position.  Use the prior support level to set your first stop. Set the stop just above the prior support level.

 

Subsequent Stop-Loss Settings 

If your stock purchase has turned into a winner, set subsequent stop-loss orders. In both cases, you should move your stop-loss up as the stock advances and sets new floors.

• Investors (long term) - set just below the 30 week moving average. 
• It is okay if the stock slightly breaks the 30 week moving average as long the moving average is sloping up.
• Note there can be some stiff pull-backs if you are in for the long haul. 
• Get out of the stock if the 30 week moving average starts to slope down.
• Traders (short term) - set just below the prior bottom which might be above the 30 week moving average.
• Set the first stop closest to the prior floor. If there isn't one, set it to 4%-6% below.
• Do not pay attention to corrections less than 7%.
• Get out if the 30 week moving average starts to slope down.
• Take profits on the way up if your stock moves up very quickly and becomes overextended, i.e. far above the 30 week moving average.