Updated: May 25, 2021

Stan discloses his rules to sell stocks or even short stocks at the optimum moment.



Earlier in the year we completed a review on Stan Weinstein book: Secrets for Profiting in Bull and Bear Markets. We covered some of the basic concepts but only briefly touched on the final third of the book; When to sell.

Let’s take a look at this highly important and often disregarded topic.

First, we remind ourselves of the core concept of Stan’s work, Stage Analysis, and the transition from stage 1 and 2, into stage 3 and 4.

Here we can see stage 1 the basing phase, stage 2 the advancing phase, stage 3 the topping phase and stage 4 the declining phase.

Stage 1 and 3 is an indication that an equilibrium has been achieved between buyers and sellers, and price will often consolidate in a sideways fashion, this is accompanied by the flattening of the 30-week moving average line.

The preferred time to buy a stock would generally be within this green shaded area, whilst the preferred time to sell a stock would be in this red shaded area, although further consideration should be made to find the optimum time within each area.

In many cases (which Stan refers to) the optimum time to buy is here on the exit of stage one, and perhaps a less preferable time to buy here.

Conversely, the best time to sell or short a stock would be here on the exit of stage 3 and the lesser preferred time to short a stock would be here.

Remember, Stan is all about playing the odds and by keeping within this framework you move the odds in your favour…

Today we focus on protecting our positions and selling stocks which often end up here..

Stan says:-

“The sell decision is crucial if you are going to really win big in the market. Unfortunately, few market players ever master this important step”.

Rule one.

Always have a predetermined stop order.

Advice suggesting a 5, 10 or 15% stop loss is meaningless on its own and can often move a winning strategy into a losing strategy. Such arbitrary levels have no logic, a true effective stop loss must have an objective reason, and this is rule number 2.

Let’s imagine we buy a stock which has broken out of a stage 1 consolidation, and price continues its trajectory over the following few weeks.

The initial ‘objective’ reason for a stop loss could be just below the break of resistance which now becomes a new support level.

As the price continues, we look for reason to raise the stop loss and protect profits. Advocates of a set percentage approach may suggest a 10% trailing stop loss which could perhaps see the stop moving to here, but without any objective reasoning or relationship to the structure of the chart.

The professional trader however would likely see further patterns appear within the chart, providing objective reasoning for a raised stop loss.

Have a predetermined, objective, initial stop loss and look for reason within the chart to raise the stop as price moves higher. Stay away from arbitrary percentages.

Stan talks us through an example template, stock XYZ, and shows us the theory of trailing stops with specific rules.

We identify the stages, stage 1, 2, 3 and 4.

We also establish the 30-week moving average line.

The price breaks out of consolidation at stage 1, above the 30-week moving average and we purchase the stock at just under $21.

The stop loss in this examp