A Sure Way to Know When to Sell High
Buy low, sell high -- it’s an easy rule to follow.
Unfortunately, selling is often the hardest part.
“Jeez, if only I held that stock for one more day. I could have been up another $2,500” is often the thought process. What we fail to consider is that we made money. We accomplished the initial goal. Better yet, we didn’t lose anything.
That’s partly because human psychology leads us to assume that a really means that conditions are improving. We think we can make another $5,000 on a trade if we let it continue to run. Then one morning we wake up to see the stock crashed and burned, wishing we had sold. We let greed get in the way.
We ignore one of Warren Buffett’s most popular maxims – be greedy when others are fearful, and fearful when others are greedy. But as many of us can attest to, we get even greedier as others get greedy.
A few days before Amazon’s dramatic surge a mysterious pattern appeared. It was just spotted
again with two BIG stocks. Their names are (Continue…)
Look at Palo Alto Networks (PANW) in June 2017. Impressive earnings and a rash of computer viruses sent the stock from a low of $107 to $140 in days. Most of us would take that gain and move on. Many others, though, still thought the stock could rocket even higher. Greed dictated their trade.
That’s the best way to lose money, though.
At the time, we had to consider two key elements of the trade. For one, the news of the earnings and computer viruses were apparently priced into the trade at the time. Two, the technical picture became aggressively bearish.
Look at what historically happened to PANW every time it hit that upper Bollinger Band. It pivoted and turned lower. We can confirm that bearishness with elevated RSI, MACD and Money Flow, as well. In fact, look at what happens when the four indicators align and agree in bearish territory.
The stock pivots and pulls back. That happens up to 80% of the time.
Yet many traders ignore it. Instead, as was the case of PANW, traders decided to keep buying even at $140 a share. Again, greed dictated the trade.
Speaking of knoweng when to sell, an "X" Pattern often reveals itself before a stock is about to breakout, even before news events, such as earnings reports. A similar "X" Pattern reveals itself when the run-up is exhausted, signaling that it's time to exit the trade. Learn more about the "X" Pattern here.