Selling into strength

As a trader, selling is perhaps one of the hardest decisions you just need to deal. Timing the exact moment when you should sell is not an easy task. Many traders buy when they should be selling and sell when they should be buying. When stocks are in a persistent uptrend, people will start to notice. Assuming that you bought a stock at a proper buy point, like when it was coming out from a base (or a price consolidation area) and had a nice follow-through, at some point you will need to close the position in order to lock in profits. There are many strategies which one can use to sell, ranging from a full close to advanced scaling out techniques, but right now just focus in selling into strength. Basically you should sell when the stock is still in an uptrend and the momentum is in full force. Don’t try or worry catching the bottoms and the tops because the goal is to profit and ride the uptrend as much as possible. Once in a while you may be able to buy exactly at the bottom or sell at the top, but that won’t be the norm at all. Mark Minervini in his latest webinar talked about this and its importance.
During the last week we had a good example of how selling into strength works.
Biotechs have had a huge performance lately, which you can see by taking a look at two of the most popular Biotech ETFs: BIB and IBB.



If you pay close attention to the charts, you will notice that after a very strong string of gains, the ETFs peaked and closed at the bottom half of their ranges for the day. This signals an exhaustion move and implies that the momentum is near the end. When playing with these high beta names, regardless of which sectors they belong, you should always sell when the uptrend is still intact. If you wait too much or chase (when buying) you will be decimated. After peaking, in the following four sessions, the ETFs lost more than 10 percent and erased all the gains of a month. The selling was fast accompanied by huge volume. This is a recurring pattern in the markets, and if you were able to read the early signs and paid close attention to the price action you could have avoided being trapped in these kind of moves.

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