How do I determine my sell points?

How do I determine my sell points?

This is an excellent question, if fact, it's the toughest
question that I face with every stock that I own.

If I own a stock and it immediately goes down, this is the
easiest decision I must make - SELL and sell fast. I know how to
cut my losses and have been doing it for years. Yes, it's a blow
to my self esteem but I always feel better when I see that
particular stock several dollars lower a few weeks later. This
is when I feel good about the insurance policy I have (sell
rules) to protect my capital.

Take Accuride (ACW) for example: I recently purchased the stock
on a hree weeks tight pattern, a pattern that is familiar
with O'Neil and CANSLIM. I placed a market order as the stock
started to move towards the breakout level of $15.00 and was
filled at $14.99.

For a lower priced stock such as ACW, I give it about 8%
breathing room which brings my sell point to $13.79. I will not
place a physical sell stop because I don't want to be taken out
of the position on false market maker moves. I reevaluate my
position every night and decide if I need to sell at the
market the next morning if it is below $13.79 or nearing the
sell point that I established. Last week, the stock fell to
$14.11 intraday giving most investors a scare but managed to
close up at $15.18. This is the exact reason why I keep mental
stops instead of physical stops. I only place physical stops
when I will be away from a computer for an extended period of
time or if my gains are sufficient and I want to protect them at
a specific number, then I don't care if the stop is triggered
intraday.

I will not change my mental sell stop of $13.79 until ACW gains
at least 20% from my buy point. If that time arrives, I will
move my sell stop about 12% below the current levels. In this
case, the numbers would read like this: ACW would be up 20% near
$18 and my trailing mental stop would be $15.84. If the stock
approaches this area or violates the number, I will sell at the
market the following morning. Remember, circumstances play a
big role in each decision. If outside events are influencing the
stock, I must take that into consideration and base my decision
on the additional information.

If ACW starts to use a moving average as support, my mental sell
stop will always be slightly below the moving average, again
giving it room to breathe. If any of my stocks gain 50%, I start
to place a physical stop about 10%-12% below the current levels
to protect the gains.

Finally, if I have not been sold out of a stock but I start to
see the stock act in different ways than it was while
up-trending, I will sell immediately (examples can be a climax
run, slicing a major moving average, breaking a strong
trend-line or possibly a string of weaker earnings reports). Use
discretion and develop a feel for what works best for you.

If Accuride (ACW) tanks today and I am forced to sell even
though I only purchased the stock in the past week, I will not
allow it to hurt my emotional balance and I will move on to the
next opportunity because I know investing is about percentages
and NOT about being right on every trade.

Below are some basic sell rules that I follow:

Sell all stocks that fall 7-10% below your purchase price. Don't
ever allow a 10% loss double into a 20% loss because of
stubbornness or the emotion of hope (hoping the stock will
rebound). It is perfectly fine if the stock is sold out for a 7%
loss and then it rebounds and you feel you would like to take
another position in this stock.

If you feel something is wrong with your stock and the action
looks odd but you are only down a few percent, sell anyway, why
take a chance, especially in a bad market environment. This is
the only form of insurance in the stock market.

When a stock has been is a solid up-trend and then it starts to
move sideways, this is referred to as churning. This can be the
first signal to the end of the run. This may serve as the
perfect time to lock in your profits and watch from the
sideline, remember, you can always get back in.

Learn to sell into strength; you can never go wrong by selling
into strength before the stock peaks. No one and I mean NO ONE
gets out at the top and if they do, they were lucky. No one and
I mean NO ONE goes broke by taking a profit after an extended
run or up-trend! Don't allow the emotion of GREED to steer your
ship, take profits when necessary, don't get greedy.

Stop Loss, Trailing Stops and Market Makers:

Many investors try to lock in gains or prevent losses with a
predetermined stop loss or trailing stop loss. This is an
excellent tool but has become an easy target for market makers
and program traders to manipulate.

For example: You buy XYZ stock at $50 and enter an automatic
stop loss at $45 to protect your portfolio from extensive
losses.

Market makers can see this entered stop loss and play the market
in order to wipe out your shares and pick them up at cheaper
prices. They can bid down the price to $44.50 or so and grab
your shares and then bid up the price back to the $50 range -
all in one day. I have personally seen intraday manipulation of
stocks being bid down, only to close for minor losses or slight
gains. Accuride is a great example from last Thursday as it was
down over 6% intraday and then closed up over 1%.

A trailing stop is a feature that allows the investor to
determine a % point at which their stock is sold.

Example: If you buy 100 shares of a stock at $50, you can select
a percentage at which your stock is sold, this percentage
follows the stock up in price. So if you bought 100 shares of
XYZ at $50 and put your percentage at 8%, your stock will be
sold at $46...BUT, if your stock advances to $60, then you will
have a new sell point at $55.20 (8% below the high of $60). In
other words, your sell stop trails or follows your stock without
you having to cancel out and resetting a new sell stop each time
your stock goes up in price.

How do you protect your portfolio without letting market makers
trip your stop loss for a premature exit?

I use a predetermined mental stop loss that is only implemented
after the market is closed for the day. I take a look at each
holding and determine if it should be sold at the market or
intraday the next trading day. I predetermined my sell level
when I bought the stock, so most emotions are already taken out
of the equation. If you invest in quality stocks with solid
fundamentals and technicals, there is no need to constantly
worry about huge losses in the matter of one or two days,
barring a tragic event within that particular company.

Finally, Post Trade Analysis:

Post trade analysis could possibly be the most important key to
unlocking your investment potential. Every investor must analyze
their past trades. By analyzing your past trades, you can focus
in on your mistakes and pinpoint the downfalls in your methods.
Ask yourself: How many stocks have you bought in the past 12
months? How many went up? How many went down? How long did you
hold these stocks? Why did the stock work? Where did it go
wrong? Did the fundamentals breakdown? Did the stock send key
technical red flags before a major collapse?

Most investors skip post analysis and consider it a waste of
time to look at the past. Many investors are scared to look at
past trades; they don't want to see the extent of the damage. An
investor will never be able to take a step forward without
looking over the past success and failures in their portfolio.
In order to focus on weak areas in your investing methods, post
analysis is the place to start. Post analysis with the aid of
charts will show you if you bought too soon, sold too late, sold
too early or bought the wrong stock all together. Print out a
chart of all stocks that you sold and plot your key entry and
exit points. Look for base building, accumulation, distribution
or any other components that help shape your final decisions.
Compare your stocks to sister stocks and see if similar patterns
occurred. Did any sister stocks start to rise or fall before
your stock? Post analysis is like looking in the mirror; you
have no where to hide and only the truth to seek.

After several post analysis sessions, you will notice
similarities in your buying and selling patterns. Similar
mistakes or successes will become apparent. Focus on both the
good and the bad. This post analysis allows the educated
investor to suck in their pride and take responsibility for
their own actions.

This is the starting point to correcting mistakes and growing
your strengths!