What’s the key to my success as a trader?
I’m talking about knowing exactly when to buy for the highest chance of success with the least possible risk.
But in order to achieve success in the market, you need to master more than the buying side of the equation.
You also need to know when to sell, whether it’s below, at or after your target.
Today, we are going to look at an example of when to sell early – even though we have an open gain, and our stop has not been hit.
Taking Profits Early
A week ago, I added Pure Storage (PSTG) to the weekly Stock Surge Daily Watchlist.
At the time, I noted that PSTG was giving us a pattern inside a pattern.
From a longer-term perspective, the large cup-and-handle formation was just beginning to break out…
While the last two months showed a traditional consolidation pattern with price tightening from left to right.
I wanted to buy the breakout above $27.50.
As expected, the stock came out of the consolidation zone strong.
We saw a nice surge in price along with above-average volume as shown in the lower panel of the chart above.
For the first four days, the trade was looking like a textbook breakout.
But the next four days were less promising.
The stock traded down four days in a row. And one of those days was on high volume.
That was and is a bad sign.
If a breakout is strong and institutions are still buying, pullbacks should be shallow and short-lived.
I want to see opportunistic buying as the big boys add to their positions on weakness.
And I want to see the stock spring higher and rise to new high ground within a few days.
So far, this has not happened with PSTG. And if the stock fails to return to its highs in the next few days or makes another new low below $28.00, I would exit the position for a small gain.
The Line in the Sand
A stop loss is your line in the sand. That is the level you will sell at no matter what.
But you don’t have to let a trade turn into a loss before hitting the sell button.
If things aren’t working out as expected and you are not seeing the strength you were anticipating, it is better to exit early and find a better place to invest your money.
And lastly, don’t forget to check out my recent article, How to Follow My Weekly Trades if you’re new to Stock Surge Daily or just want a refresher.
Embrace the Surge,
Editor, Stock Surge Daily