Want to learn when to sell a stock? Start by learning what a stock looks like when it’s doing what it’s supposed to do. Then, when it stops doing that…then sell it. Here’s Stamps.com ($STMP) (August 06, 2020)
STMP
I want to talk about Stamps.com ( NASDAQ: STMP ), this is why, we’re going to be selling this stock tomorrow. We first put this on the Growth Stock List back here at 189.70, something like that; bought it towards the end of the day here. This stock has done phenomenally well since then. We sold some when we were up 45 percent, now we are up about 70 percent on the remaining half of the position and I will be taking profits on that tomorrow. This has been a really good trade, which is why I am showing it to you now. Seriously, that’s it, I’m showing it to you now.
This is what I want to mention, why I want to emphasize this if I am trading according to key moving averages; I am looking at this stock, there are a lot of stocks that are looking like this now. Adobe ( NASDAQ: ADBE ) looked like this a few days ago, we’ve got a whole bunch of them, I call them pinch and pops. We are looking at this stock here; it has pulled back to the 50-day moving average and I am saying, “You know what? This is a pretty nice shallow drifty move here; this is a pretty good setup. So I can buy the stock right here and then, you know, I will set the stop because my thesis is, the stock recovered off of the 50-day moving average so this should move up. I think there are buyers here that are going to wind up pushing this stock up here.”
Stick with me on this; so because of that, that’s my theory, I think these buyers are here so I don’t have to keep a stop down here below this recent low. Why? Well, I will tell you why; because if that’s my stop and my theory is that this stock’s rebound off of the 50 is going to work into higher prices then wouldn’t you think that I would know that I was wrong and this is not going to happen before the stock gets all the way down to here before it breaks down there? Yes, I would, I would know if the stock breaks below this level because, again, I am expecting the stock to bounce right there. And so if it doesn’t bounce but instead it keeps falling I can get out with a really small loss. It’s a loss but it’s a small one.
So okay, the stock goes up and it kind of farted around a few days here but I didn’t get stopped out. It didn’t just rally up there but every day that the stock traded, this is the entry day here, then the very next day, that’s okay there are a lot of other red boxes here on this chart. It still traded within normal limits. And then the following day it is still right around the 50-day moving average, this is all good. There is no shakeout here; there is no reason to sell the stock. I would like it if it was up at $2000.00 but it is trading right where it has every right to trade. And then finally this trade really starts getting going. So I am thinking, okay the 50-day moving average is good, that’s great.
Now, was this great trading prowess on my part? No, my work is over, the entry is done, we own the stock. So now we are just looking for a reason to sell; oh, there’s a reason to sell. Really? What did I mention before about there being a lot of red boxes on this chart? This is a red box followed by another one, kind of. But what did it do? It came down to the 50-day moving average kind of like it did back here and didn’t even stay there for a cup of coffee. It ran right back up and closed near the top of the day. So okay, fine, the stock keeps going up; watching the 50, watching the 50, it is slowly drifting up. Now it’s accelerating a little bit; oh my gosh, I have got to sell my stock! Why? Why do we have to sell the stock?
At some point I wanted to take profits on half of the position, which we did and I will tell you why; because we keep track of our trades at Stock Market Mentor. We know what our average profit is. We know what our average loss is. And I have got some pretty good numbers here so I want to book some gains and improve my numbers. It is kind of like, yes, I’m a batter, I’m up at the plate and if I see a total layup bunt here I will go ahead and take that just so I can get on base and improve my batting average. So that’s what we did. But why did we not sell it all? Well, why would we sell it all, it’s working? I am a lapsed Catholic. I didn’t feel guilty, though, about making this money.
And then finally, the stock is up here and so now we will look to sell it simply because the catalyst that everybody was buying this stock into was for earnings. And so they report the good earnings, now is the time to be selling that stock. Technically, there was literally no reason to sell this stock, none. No reason to sell the stock. Some would even argue there’s no reason now after all the stock just keeps going up higher on a weekly basis. But I say if you are up 70 percent on something maybe there is other stuff you could be doing. I think you have kind of made the easy money. That’s how we have traded and how we are going to complete our trade on Stamps ( NASDAQ: STMP ). We have got other stocks that are working that aren’t far along like this is but they are working in the right direction.
So my suggestion to you is, learn to hold your positions longer. If you are in a winning position it’s because you are right about the stock, you are right the trade, you’re right that the stock is being bought. If you don’t see clear evidence that the stock is no longer being bought, I’m not talking about by Billy Bob and Jethro, I am talking about institutions. If you don’t see evidence that the stock is no longer being bought then maybe all the stock is doing is taking a rest because the buyers are saying it’s up a little bit to high, let’s let it come in for a few days and then we will start buying again. You have got to learn to hold on during those little few days where the stock comes in if you are ever going to make the big money; because the big money is not made by an individual moving a stock. The big money is made by going through the big moves in the stock and then holding through the little subtle downdrafts and then participating in the next big move.
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