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If a stock breaks through the 50 DMA on heavy volume, and you missed selling the stock on the day of the break, is it better to just sell at market when it opens, use a stop loss, or wait an hour or two and see what it does? This is the first time I have had this happen since starting trading 6 months ago. Any advice from more seasoned MarketSmiths would be appreciated.
You ask a question that is to open-ended to really answer. The correct answer is: It all depends. Depends on where you bought the stock Why it is going down. And the overall market. And what the stock was doing on the way down to the 50 day. And its volume signature Generally speaking if a stock is not totally broken it may try to retake the 50 day. If it blows through the 50 day in heavy volume, it is definitely a sell signal that needs to be considered. Take a look at BIDU. It blew through the 50 day several times last fall only to rebound several times. And the stock has really fallen from grace as a “leading stock.” Look at NAUN in the last couple weeks. It blew past the 50 day on heavy volume on earnings. Came back 8% or more and then went back down. NAUN had several bad volume days before the earnings report. Hence a possible signal the earnings report may be bad. And a possible signal that the rebound may not work. So to answer your question: A stock that blows through the 50 day in heavy volume needs to go to the top of the “sell consideration” list. Exactly when you sell it is up to you depending on a whole list of considerations.. Don
You could also consider selling only if the stock closes another day below the first close below the 50 DMA. To avoid shakeouts. But there's more risk.
Or, sell automatically with a sell stop order below the 50 DMA, and be prepared to buy the stock back if it moves back up above the average on volume.
Or, only consider weekly closes below the 10-week line instead of daily ones.
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