FAQs Frequently Asked Questions
Pocket Pivot Review / Buyable Gap Ups
How do you set your sell stops?
Our book discusses selling strategies in detail. That said, every investor must find their own risk tolerance levels. Some will have shorter hold times (swing traders, intermediate term traders) and others will prefer longer hold times. Some will pyramid just a few positions, so their stops for large positions will be different than, say, someone who holds several or more names. Some will prefer less volatility in their accounts so may wish to hold more names and have tighter stops.
In terms of how we set sell stops with pocket pivots, we use the 10dma and 50dma as our sell guides. That works for our trading personality. If the stock obeys the 10dma for at least 7 weeks, then we use the 10dma to sell the stock if it violates it. A violation occurs when the stock closes below the 10dma, then in subsequent days, trades below the low of that day. If the stock does not obey the 10dma for at least 7 weeks, we switch to using the 50dma as our sell guide to avoid getting whipped out of the position. Of course, if the general market turns sour, we are more than likely to sell the position even if it has not violated either the 10dma or 50dma. Gil is likely to sell his whole position knowing he can buy it back, while I may prefer to sell half, while trading around a core position. Sell stop placement is contextual with the strength or weakness of the general market. Also, if we have a stock that is lagging in a strong uptrending market, we will most likely cut the position in half or sell it entirely to make room for a stock showing greater upside potential.
In terms of how we set sell stops with gap ups which are an extreme form of pocket pivot, we have specific rules we discuss in our book. Generally, after buying the gap up, if the stock trades under the low of the gap up day over subsequent trading days, we will sell at least half the position. We find applying the sell rules we use with pocket pivots can work well with gap ups.
In terms of how we set sell stops with a stock that is breaking out of a base that may or may not coincide with a pocket pivot on that same day, we employ a similar sell rules used to sell pocket pivot stocks, knowing, however, that our loss may be greater because base breakouts are often bought further away from a major moving average such as the 10dma.
In terms of how we set sell stops with pocket pivots, we use the 10dma and 50dma as our sell guides. That works for our trading personality. If the stock obeys the 10dma for at least 7 weeks, then we use the 10dma to sell the stock if it violates it. A violation occurs when the stock closes below the 10dma, then in subsequent days, trades below the low of that day. If the stock does not obey the 10dma for at least 7 weeks, we switch to using the 50dma as our sell guide to avoid getting whipped out of the position. Of course, if the general market turns sour, we are more than likely to sell the position even if it has not violated either the 10dma or 50dma. Gil is likely to sell his whole position knowing he can buy it back, while I may prefer to sell half, while trading around a core position. Sell stop placement is contextual with the strength or weakness of the general market. Also, if we have a stock that is lagging in a strong uptrending market, we will most likely cut the position in half or sell it entirely to make room for a stock showing greater upside potential.
In terms of how we set sell stops with gap ups which are an extreme form of pocket pivot, we have specific rules we discuss in our book. Generally, after buying the gap up, if the stock trades under the low of the gap up day over subsequent trading days, we will sell at least half the position. We find applying the sell rules we use with pocket pivots can work well with gap ups.
In terms of how we set sell stops with a stock that is breaking out of a base that may or may not coincide with a pocket pivot on that same day, we employ a similar sell rules used to sell pocket pivot stocks, knowing, however, that our loss may be greater because base breakouts are often bought further away from a major moving average such as the 10dma.
| First published: | 3 Oct 2010 |
| Last updated: | 3 Oct 2010 |