When you are Swing Trading Stocks perhaps the MOST important decision is knowing when to sell them. Even if you are using a professional Stock Picking Service you still need to take responsibility for your account. After all it is YOUR money on the line.
There is no reason that you have exit a stock exactly when they tell you to, assuming that they tell you at all. Not all stock picking services will tell you when to sell. They will give you the stock to buy and when to get in but leave the exit to you.
The easy part is when the stock is going against you. You should know that as soon as you get filled you need to enter a stop loss to get out at your pre-determined level.
Where it gets harder, is when you have the happy problem of a stock that is trending in your favor and knowing where to take profits. There are two ways to do it, one is setting a target and the other is a trailing stop. Both have their pluses and minus’s.
I prefer to use a blended strategy of using both. The reason being; is using a target price prevents you from having the monster gains of a stock that doubles, triples or more in price. BUT what goes up, can come back down in a hurry and end up giving back a large part of your gain.
Using a blended strategy of selling half of your position at a set target price and the other half using a trailing stop gives you the best of both worlds.
So how do you know where to set your target price? I will show you a simple strategy I use:
I use FinViz.com to bring up a chart of the stock. Then draw a trendline connecting the lows. You cannot always draw one as the lows don’t always lineup. (I am using a logarithmic chart) If you can’t connect at least 3 lows (they don’t have to be exact but close) then this wont work.
If you can draw a trend line, then simply draw a parallel line above it across the highs like you see above. In finviz, if you click on the trend line, there is an option to create a parallel line.
So in this example. If we entered on a breakout at about 14.50 we would exit HALF our position at about 17.50 or when it touches the top of the channel as would expect a pullback. Then just hold the second part of our position for a bigger gain, assuming the stock continues up.
This way we are locking in a decent profit and then holding onto the other half and trail a stop below a logical support area.
Remember it’s your money and you need to take responsibility for it. If you need help determining where and how to buy stocks, here are the Stock Picking Services I use:Microcap Millionaires and Jason Bond Picks.
You can read all the reviews here:
If you are looking to open a brokerage account or looking for a better one, I wrote some reviews of brokers I have used and currently using.
OptionsHouse Review (Currently Using)
Scottrade Review (Used when I first started)
Regardless of which Stock Picking Service you use or if even if you choose to go it alone, please download my free eBook: “The 7 Habits of Millionaire Traders”
– Robert Walsh