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Frequently Asked Questions

Market Lab Report
As a stock moves up and makes some big runs is there a certain "system" that you use to lock in profits?

Q: As a stock moves up and makes some big runs is there a certain "system" that you use to lock in profits? I am familiar with climax tops and violations of moving averages. I have a handful of stocks (BZUN, SQ, MULE) that are currently up about 30%. A common problem is that I leave decent profits on the table if I use moving averages to lock in profits. Are you able to share any insights on how you lock in profits?

A: In past markets, major climax tops were more noticeable thus selling into or immediately after such strength was more obvious. In today's markets, such major tops are virtually non-existent, but you do have minor tops which can be sold into.

It is best to develop your chart eye to see when a stock's price has gotten ahead of itself in context with its overall chart. You may then decide to sell a partial or full position. Some keep a core position using longer term sell signals such as moving averages. This can work nicely if you're in a stock that is showing big leadership potential. NVDA or other tech juggernauts would be good examples. Meanwhile, Chinese names which tend to be more volatile (JD, MOMO, BZUN, etc) should be sold when the price gets ahead of itself. Using price extension above a moving average is one way to gauge this. You can always then buy back should the stock establish a floor such as by volume dry-up or undercut & rally action. 


Published: May 27 2017