William J. O’Neil, the founder of Investor’s Business Daily, is known for his strategy of buying growth stocks and selling them at the right time to lock in profits. Here are some of the key sell rules that O’Neil recommends.
1. Cut Losses Short: O’Neil emphasizes the importance of cutting your losses quickly when a stock is not performing as expected. He suggests setting a predetermined stop-loss level at the time of buying a stock to limit your losses.
2. Take Profits at 20-25%: O’Neil suggests selling a stock when it has gained 20-25% from your purchase price. This rule helps you lock in profits and avoid holding onto a stock for too long.
3. Watch for Distribution Days: O’Neil uses the concept of distribution days to gauge the overall health of the market. A distribution day occurs when a major stock index closes lower on higher volume than the previous trading day. If there are a series of distribution days, it may indicate a weakening market trend, and it could be a sign to start selling stocks.
4. Follow Sell Signals: O’Neil recommends using technical analysis indicators like moving averages, relative strength, and other chart patterns to identify sell signals. When a stock shows signs of weakness or breaks below key support levels, it may be time to sell.
5. Avoid Emotional Attachments: It’s important to stay disciplined and avoid emotional attachments to stocks. If a stock is not performing as expected or if market conditions change, be prepared to sell and move on to other opportunities. Following these sell rules can help investors manage risk, protect profits, and improve overall performance in the stock market. It’s important to develop a consistent and well-defined selling strategy based on your risk tolerance and investment goals.
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