When the market starts moving against us,emotions like hope persuade us to hold when we should sell, compelling us to just give it one more day. But “one more day” can mean losing a lot more money. That’s why sell rules are crucial to every investor’s strategy.


Sell rules provide a consistent guide toward solid decisions that are not swayed by emotion. Without a doubt, sell rules have enabled our company to survive and keep our equity intact for future bull markets, even during the toughest environments of the past 50 years.


Take Stericycle, Inc. (SRCL).Earlier this year, I highlighted the potential showing up in this stock’s chart. Since then, the stock has triggered several sell rules (marked above with red arrows). Two of the key ones are outlined below:



Largest One-Day Loss


To protect profits on a position, we monitor our stocks for abnormal action that may be signaling a correction on the stock. One clear signal is a stock getting hit with a single-day loss larger than any other day since its uptrend began. Rule: Sell some shares during the largest single-day loss, or sell the position outright, if other sell signals are presented simultaneously. 


The 7-8% Sell Rule


The most important sell rule I use supports my number one goal of investing: Capital Preservation. Avoid losses and you live to invest another day! Rule: Never let a stock’s price drop further than 7-8% below your purchase price before selling. No exceptions! (Read more about how sell rules help you manage risk.)  


Even though sell rules are one the most important pieces of a sound investment strategy, many investors overlook them. Given the challenging nature of the market this past year, or even this past decade, no other strategic move could have saved investors more money. If you currently don’t use any sell rules, make it a priority to come up with a set that suits your investing style—pronto!


Best Returns,

Scott O'Neil

President, MarketSmith Incorporated

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