FAQs Frequently Asked Questions
If it violates the 10dma within 7 weeks, you would switch to using the 50dma as your selling guide. Of course, if the stock drops back into its base, general market conditions become bearish, or the stock behaves in a poor manner, it would be prudent to sell the stock before the 7 week sell rule's sell stop was hit. And yes, you run the risk of losing your profits if you wait for it to violate its 50dma.
But the idea is that the stock will not violate its 50dma and move higher after bouncing off its 50dma or some such constructive action, thus instead of having sold, you will still be in the position.
Also keep in mind that the stock may appear to be well above its 50dma, so it seems like if it were to drop all the way down to its 50dma, all profits and then some would be lost, but stocks dont drop that fast unless something is truly wrong, in which case you would have sold well before it violated its 50dma.
|First published:||19 Feb 2014|
|Last updated:||7 Jun 2020|