Selling stocks can be a tricky business, especially when the market is volatile. The past year has been a rollercoaster ride for many investors, with stocks going up and down like a yo-yo. But fear not, as there are ways to determine when it’s time to sell your stocks.
One of the most reliable methods is to use the 10-week moving average to mark a sell signal. However, it’s essential not to set your stop orders right at the 10-week average. Instead, wait for a decisive break below the 10-week moving average. But what does that mean?
Well, a decisive break occurs when the stock closes the week 2% or more below the 10-week line. If the stock starts to drop midweek, it’s best to wait until Friday afternoon before making a decision. This will give you a clear picture of whether it’s time to sell or hold on.
One example of this technique in action is Shopify (SHOP). In April 2020, the stock broke out of a cup base and ran until September of that year, with the 10-week line supporting its rise. On Sept. 4, the stock dropped as much as 10% below the 10-week line. However, if you held on until Friday’s final hour, you could have saved yourself 7% of that loss before closing your position.
But the story doesn’t end there. Shopify remained on the radar in 2021, with gains to be had despite the market’s oscillation between “confirmed uptrend” and “uptrend under pressure.” However, breakouts from late-stage bases in December 2020 and June 2021 ultimately failed. The 10-week line would have given you a sell signal before facing an automatic 7%-8% stop loss. In the week ended Dec. 3, 2021, Shopify closed 5.5% below the 10-week line with high volume. This was the beginning of the stock’s dramatic plunge below 350.
It’s essential to remember that pullbacks and shakeouts can be frustrating when holding a position. Still, if you get shaken out, you can always buy back at a safer, albeit higher, price. But if you ignore the decisive 10-week rule and hold a position below the 10-week line, you risk a stock wiping out your portfolio.
In conclusion, determining when to sell stocks is crucial, and using the 10-week moving average to mark a sell signal can be a reliable method. Remember not to set your stop orders right at the 10-week average and wait for a decisive break below it before making a decision. And always keep an eye on the weekly chart to help with the decision-making process.