I hope you've had a good two weeks in the market. I also hope that you took advantage of the last ezine's stock tip. As a reminder, I spent a good bit of time talking about how news impacts the price of stocks. And we looked at UYG, a 2X financial ETF. I said that you should keep an eye on this stock. That ezine was sent out on January 22,2009. On January 23rd, UYG gapped down to $2.74. Since then, it went up to $4.00 by the 28th and then fell back down. On Friday, it was back up to $3.75 in after-hours trading. If you had purchased the stock at $2.90 on the morning of the 23rd and sold it this past Friday, then you would have made a 24% ROI.
My goal in this ezine is not to find stocks for you to trade. Rather, it is to show you how to trade the stocks you choose. So, in this issue, I want to address the question "when do you sell?" We'll look back at the UYG chart as a learning lab. By the way, a financial announcement was scheduled for Monday, February 9th. I understand that has been pushed back to Tuesday now. But, either way, I think this stock will continue to trade well. In my mind, any sort of bank assistance will be welcome news (especially if it involves a way to deal with the bad assets on the banks' spreadsheets). But, use your own judegement. Perhaps today's lesson will help you make better trading decisions. So, let's look at the chart. You can open a separate browser window and type in http://stockcharts.com/snapshots/160904961.png. Or just click on
So, the question is this: "How do you determine when to sell a stock?" The simple answer is that you sell when your stock trading strategy tells you to sell. But, if you are still developing your sell strategy, then perhaps today's ezine will be helpful.
UYG could be played as a swing trade, a day trade, or a combination of swing and day trades. Buying on the 23rd and selling this past Friday would have resulted in a 24% return. But, you easily have traded this stock three times during this period.
The orange rectangles outline the buy opportunities. The green circles outline the sell opportunities. I use the technical indicators to tell me when to buy and sell stocks. So, let's review the common elements of the little green circles. The first green circle occurs on January 26. The candles are hitting the top of the Bollinger Band. RSI and Stochastics (at the top of the chart) have both fallen from 90% to 70% and then to 50% - and they are falling in unison. The inside MACD histograms is shorter than the previous histogram. And the MACD has formed a confirmed top. Then look at the second green circle. You'll see the exact same pattern. In fact, the stock gapped down on the morning of the 29th, and continued a long decline back to $3.00 after hitting $4.00 on the 28th.
So, let's say that you are currently holding UYG. Look to the far right side of the chart. Would you sell right now? No. Why? Instead of bouncing off the top Bollinger Band, the candles are scaling it and forcing it upward. The MACD line has not formed a confirmed top. RSI and Stochastics are still above 50%. Now, who knows what will happen tomorrow morning. But, based on our analysis of the two green circles, the stock is showing no reasons (yet) to exit the trade.
Developing a complete "when to sell" strategy is obviously more involved that this quick article. But, if you're looking for some guidelines on when to sell your stocks, maybe this will help you look at the technicals for some guidance.
Hope this was helpful,