Sell Decisions : CAN SLIM PLUS by John Mackel, Esq. Real Estate and Business Attorney Pasadena IBD Meetup Co-Leader

Oh, Good Grief! I bought it. Now what?

P – Protect Your Capital: Always sell before a 7-8% loss. L – Sell Laggards to Feed Leaders: Some positions will outperform, so sell down positions in laggards to feed the leaders. U – Up 20-25%; Consider Selling: Only exceptionally strong stocks should be held for potentially bigger gains. S – Sell Signals: Watch for sell signals, especially after an extended run.

Protect Capital; Preservation Is Key Defensive selling is critical. Sell decisions are based only on technical action. Always sell before you have a 7-8% loss. If freezing is a problem, selling part (say 1/3) when down 3%, 1/3 when down 5% and the remainder when down 7% should help. Seasoned traders develop an eye for selling earlier and the ability to buy back if they are wrong. If you take a 20-25% gain, you can afford to take 2 or 3 7-8% losses and still make a profit or break even. Avoid u-turns, sell before there is a loss.

Sell Laggards & Feed Leaders Some sell their leaders too early instead of selling laggards. Leaders are stocks that are up the highest percentage. Early in a rally, it is often difficult to tell which stocks will outperform. So, several initial positions may be entered. As the rally progresses, focus on your best percentage performers and find places for follow-on purchases with money from the sale of laggards.

Consider Selling When Up 20-25% Institutions often begin taking profits at this level causing a pullback. It’s easier to sell on the way up because pullbacks can happen quickly. Exceptions: The 8-Week Rule - Keep stocks for at least 8 more weeks that make 20% or more within the first three weeks after breaking out. Keep exceptionally strong stocks bought earlier in a bull market with excellent fundamentals for longer-term gains. Sometimes, keep the early leaders in a rally until sell signals arise, but protect the % profit on pullbacks.

Sell Signals Save Suffering

What Are Sell Signals? A Climax Run A Close Below the 10-Week or 50-Day Moving Average on Heavy Volume A Group of Bearish Indicators

Climax Runs Generally, climax runs begin in leaders that have risen for many months then suddenly blast higher. This may be 18 weeks or more weeks after a base breakout. However, they can occur 8 weeks or more after a late-stage base breakout. So, avoid selling on similar signals earlier in the run. There is usually a rapid price run-up of 25-50% in 1- 3 weeks. Typically, the move isn’t on earnings. The stock may be %+ above the 200 day. Indicators: exhaustion gap, greatest weekly price spread, largest daily price increase of run, upper channel line break and heaviest daily volume of the advance. These will usually correspond with market tops, but not always.

A Group of Bearish Indicators High Volume Bearish Reversals Railroad Tracks High Volume Stalling New Highs on Lower Volume Big Gap Down Broken Weekly Uptrend Line Low Volume Rebound after Pullback Largest One-Day Price Drop on Big Volume One Week Down/One Week Up & Variants Poor Action of Other Leaders in the Same Group Market Under Pressure or in Correction – 3 out of 4 stocks follow the general market trend – consider locking in at least some profits if distribution days increase rapidly Sell when a group of these indicators occur in a short time