We all love to buy stocks. When using a research platform such as MarketSmith, finding stock ideas becomes second nature. We have the tools to efficiently research companies and find those with the same characteristics as the market’s previous leaders.

 More difficult is knowing when a stock is telling you to walk away.

That difficulty stems from the fact that we often forget (or ignore) the primary rule of investing: Don’t lose money. How many times have you been down on a stock, yet are somehow paralyzed about selling it? Every day you watch it move lower—losing more and more money.

We should always play defense first, and remember that in financial markets, there is a time for everything. There is a time to be fully invested, just as there is a time to be on the sideline. At times, the market provides opportunities for us to be on margin, and in some cycles, the market calls for us to invest cautiously. Recognizing sell signals will help you identify and interpret what the market is trying to tell you.

The classic sell signal we use in house is the break of the 50-day moving average on high volume. We all know that institutions typically will support their positions at the 50-day, so a breach of that support level would be a bold indication of institutional selling.

Another sell signal to look out for is a stock with its largest one-day point loss. Each stock has its own personality. Following your stock daily will help you develop a feel for what is normal and abnormal in the way it trades. A stock’s biggest day down is often clear confirmation that the stock’s essential personality has changed, and distribution may be imminent.   

To learn more, click here to view our webinar on “Defensive Selling.” If you have any questions, please reach us at (800)424-9033 or at reachus@marketsmith.com. We’re here to help.

Best Returns,

The MarketSmith Team