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Master 9 Sell Rules To Secure Your Stock Market Profits

While buying great stocks is crucial for success in the market, knowing when to sell them is equally important. Holding onto winners too long can quickly turn them into losers, and William O’Neil, the founder of Investor’s Business Daily and a renowned investor, has developed a set of 9 sell rules that have helped him secure significant profits.

These rules focus on identifying signs of weakness in a stock’s momentum, potential distribution by institutions, and divergences between price and volume, all of which can signal an impending decline. By understanding and applying these rules, you can improve your trading discipline and protect your hard-earned gains.

  1. Widening Weekly Price Spread: Analyze weekly charts and be wary if the current week’s price spread, from the absolute low to the absolute high, exceeds any previous weekly spread. This extreme price action might indicate an unsustainable move and a potential reversal.
  2. High Volume Breakdown of 50-Day Moving Average: A decisive break below the 50-day moving average on high volume often signifies a loss of institutional support. Consider selling if this occurs, especially after a prolonged uptrend.
  3. Largest Daily Price Run-Up: Beware of stocks experiencing their biggest price jump since the start of their uptrend. This explosive move, often accompanied by high volume, can be a sign of exhaustion and a potential peak before a reversal.
  4. Heaviest Daily Volume on a Reversal Day: The heaviest volume day since the uptrend’s beginning, especially if it coincides with a price reversal, can be a strong selling signal. It suggests institutional selling and a potential change in the stock’s direction.
  5. Distribution Days: Watch out for repeated days of high-volume selling, even if the price remains stable. This indicates institutional distribution and possible future downward pressure.
  6. Increasing Down Days: As a stock approaches its peak, the number of consecutive down days often increases relative to up days. Observe this shift in the price pattern and consider selling if it becomes pronounced.
  7. New Highs on Low Volume: New highs accompanied by declining volume suggest waning institutional interest. This lack of enthusiasm can foreshadow a reversal, making it a potential selling opportunity.
  8. Biggest One-Day Price Drop: After a significant advance, a stock’s largest one-day decline since the uptrend’s start can be a bearish signal, especially if confirmed by other sell rules.
  9. Falling Below the 10-Week Moving Average: After a prolonged uptrend, a stock closing below its 10-week moving average can indicate a loss of momentum and potential weakness. Consider selling if this occurs, especially if accompanied by other bearish signals.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.
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