Here’s a key investing rule: Make buy decisions using sound fundamentals and technicals, such as IBD ratings and Chart patterns, and sell mainly on technicals.
But what exactly does it mean to sell on technicals?
Well, this rule is saying that in a few cases you can spot signals without checking out a stock’s chart.
Let’s examone of few of these signals:
Weakening Relative Strength. You probably bought your option on a stock when its IBD relative Strength Rating was 80 or higher. Consider selling when that rating slides. Think about exiting when the rating falls below 70.
Standing alone within the Industry. Another sell signal is when your underlying asset is a “Lone Soldier” within its industry as the only one with a rising price. Cyclical changes are no doubt on the horizon.
Consider Selling when profit growth slows sharply. When the percentage increase in quarterly earnings slow sharply for two straight quarters, such as by 2/3 the previous quarter’s growth rate.
Contrarian Signal- Lots of publicity, excitement. Yes, this is a sell signal. When everyone thinks it is a wonderful stock, there comes a point where there is no one else to jump on the bandwagon. One downgrade can add a sour note that will spoil the trend.
A market correction. If the market enters a downtrend, don’t depend on your underlying asset to be able to swim against the tide. This is essential to protect your portfolio against severe losses.
If the stock rebounds, you get another chance to enter the trade. Better to be safe than sorry.