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Strategies & Market Trends : Charts for Breakout II
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To: Julius Wong who wrote (1700)11/7/2003 11:28:50 AM
From: Vegas  Read Replies (2) of 8531
 
Has there been a good thread on this board (or elsewhere on SI) on how and when to exit positions in stocks that have recently gone through a breakout?

You asked a tough question.

Tough question indeed. I'll take a stab at some basics, and maybe others can add thier thoughts.

1. Use trailing stops. Set a stop at XX$ or XX% below the price of the stock and move it up as the stock price moves up. Then trade ends when you get stopped out.
This is one of the easiest methods, but you can potentially cut into profits if the stock takes a dip or your stops are too tight.

2. Set a target for each trade This can be an random value like 15% or $2 or a technical value like a resistance level. For example a friend of mine uses a strict 25% gain and dump rule. I read a book that said many times stocks lose momentum at 5&10 numbers because many traders tend to set their targets there, so a good idea may be to dump before $10,$15,$20 etc...

3. Wait for a technical SELL signal. In the same way that the BUY signal is generated for a break-out, a sell signal is generated for reversals. This is the most difficult because you have to be very good at TA, and even then false signals can be generated all the time.

If you are a beginner or a primarily fundamental investor, I recommend the book Getting Started in Technical Analysis By Jack Schwager. The first half is all chart reading, but the second half of the book is all about developing your own trading system and goes over many basics and styles of entering and exiting trades.

amazon.com.
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