Make money be happy ( Kawan & Mike )

Posted by Kuntang on February 23, 2006 at 16:56:57:

SELLING STRATEGIES

Meng, age around 50’s is a newspaper delivery man. He seldom comes to the securities firm often, but he was usually quite right about timing when to buy and when to sell. He does the opposite of the herd. He buys when people sell and sell when people buy. Warren Buffet said “ Be fearful when others are greedy and greedy only when others are fearful.” With this statement in mind, we have to develop our own buying and selling strategies.

Personally I do not have specific selling strategy but the following may act as my guidelines and yours too:

Cut Loss When Trend Reverses

Most of us won’t sell stocks when the price goes down. We simply won’t cut our losses because we do not like to admit our failure. But it makes no sense to hang onto a plummeting stock, as we will loose the opportunity to replace bad investment with good ones.

Sell When The Stock Drops by X %

When the stock falls below your cut loss point; SELL. There is no fixed rule on this as it depends on the nature of the stocks. For example blue chips stocks can be 10-20% whilst technology stock is 5-10%.

Always cut short and limit every loss is the number one rule of a highly successful individual investors. However to do this takes discipline and courage. There should not be any sentimental feeling towards the stock. The whole secret to wining big in the stock market is not to be right all the time but to lose the least amount possible when you are wrong. You are wrong is when the price drop. Bernard Baruch said, “ Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong.”

When does a loss become a loss? It is when we say, “ I can’t sell because I don’t want to take a loss.” But the stock doesn’t know who we are and it couldn’t care less what we hope and want. The larger the paper loss, the more real it will become. You’d be better off selling and going back to a cash position, where you can think far more objectively and buy other good stocks and eventually recover your loss or make more profit.

It is a dangerous fallacy to assume that because a stock goes down, it has to come back up. Many don’t and it may take years to recover. The policy of limiting losses is similar to paying insurance premium where we are reducing the risk to the level we are comfortable with and to protect ourselves against the remote possibility of a serious loss.

Sell When The Stock is over-valued

When the stocks are pushed way past their true value, they are more vulnerable for a plunge. The strategy is to sell when the stocks are over-valued and buy back later during market correction. Be prepared to watch it keep going up after you sell as happens sometimes. Don’t regret as it could have gone the other way.

Sell when there is fundamental change in the company

We bought the company because of its fundamental and its business plan. When there is a change and the market do not agree with it, SELL.

Sell when the stock price reaches your target

Apply the 3-to-1 reward to risk ratio strategy. That is: if your target profit is 30%, your cut loss point should be 10% below the purchase price. If your target profit is 60%, cut loss is at 20% below the purchase price. So when the stock reaches the pre-determined target, SELL.

Take heed to the following quotes from some of successful investors on why cutting loss is very important:

William J Oneil “ The way to make investment decisions is always take your losses quickly and your profits slowly.”

Investors are always hoping rather than being realistic. There are only two emotions in the market…hope and fear. The only problem is we hope when we should fear and we fear when we should hope.

A typical investor tend to wait when he have a loss. However we should be selling our worst performing stock first and keep our flower patch free of weeds.

“ I am not worried about my stocks being down because they are good stocks and I am still getting my dividend” However good stocks bought at the wrong time can go down as much as poor stocks and it is possible that it is not a good stock in the first place because it may be your own personal opinion that it is good.

Forget your ego and pride, stop trying to fight and argue with the market and don’t get emotionally attached to or fall in love with any stock that is losing you money. Remember, there are no good stocks; they are all bad…unless they go up in price and you make profit.

Joe Kennedy, father of President J.F Kennedy, said “ Only fools holds out for the top dollar” The object is to get out while a stock is up before it has the chance to break and turn down. The secret is to hope off the elevator on one of the floors on the way up and not ride it back down again.

Two things to remember about selling; First, buying right solves most of your selling problem. Second, beware of big block selling just after you buy a stock during a bull run.

Five questions you ask yourself whenever you think about selling a stock, according to Pat Dorsey:

1. Did you make a mistake? If your analysis was wrong, cut your losses and move on.
2. Have the fundamentals deteriorated. Is cash is piling up, no new investment, no growth and competitors join the industry.
3. Has the stock risen too far above its intrinsic value.
4. Is there something better you can do with the money that gives you higher yield.
5. Do you have too much money in one stock?

SELLING SIGNALS USING JAPANESE CANDLESTICK TECHNIQUE

Fred K.H Tam said, “ the candlestick technique is the most leading of all technical indicators that I have come across…….because candlestick signals are based on an analysis of price itself.”

The following are some of the characteristic of candlestick that indicates a SELL signals:

Shooting Star

Shooting star is an inverted umbrella candle found at the top. This candle’s close is greater than the open and has short white body with long upper shadow. If found after a market advance, is a signal of a possible market top and has a bearish implication. However a bearish confirmation is required before selling.

Hanging Man

Hanging man is a white umbrella candle found at the top. This candle’s close is greater than the open with short white body and a long lower shadow. If found after market advance is a signal of a possible market top and has bearish implication. However a bearish confirmation is required before selling.

When a black spinning top becomes a top reversal pattern

Black spinning top is when the close is lower than the open price. The total length of the body must be smaller than the sum of its upper and lower shadow. A black spinning top seen after a rally with a long white candle before it is a signal of a bearish market. However a bearish confirmation is required before selling.

Gravestone Doji found at the top

Gravestone doji is formed when the open, close and low are at the same price. It has a long upper shadow. Gravestone doji if found after a strong up trend has bearish implication. However a bearish confirmation is required before selling.

Long legged dogi at the top

Long legged dogi is formed when the open and close are at the same price, with long upper and lower shadow. If found after a strong up trend has bearish implication. However a bearish confirmation is required before selling.

Dragon fly dogi at the top.

Dragon fly doji is formed when the open, close and high are at the same price. It has a long lower shadow. If found after a strong up trend has a bearish implication. However a bearish confirmation is required before selling.

Dogi at the top

A dogi is a single candle where the open and close are at the same price. It has no real body and the upper and lower shadow can be short or long. If found after a strong up trend has a bearish implication. Bearish confirmation is required before selling.

Bearish Engulfing

Bearish engulfing is when a thick black candlestick totally engulfs the previous day white candlestick. The shadow is not important. It is a bearish signal and no bearish confirmation is required, immediately sell.

Happy trading
Kuntang