Strategic Exit Points: The document emphasizes three key sell points to mitigate losses when a stock breakout falters:
Sell Rule No. 1: Sell one-third of the position if the stock closes below the breakout day’s low. This acts as an early warning system. “By taking this action early, you reduce your risk while still holding onto some of your position in case the stock recovers.”
Sell Rule No. 2: Sell another one-third of the position if the stock closes below the low of “Day Zero” (the day before the breakout). This signifies a breakdown of critical support.
Sell Rule No. 3: Sell the remaining position if the stock falls 5%-8% below the buy point. This rule, inspired by William O’Neil’s strategy, prevents significant capital erosion.
Emotion-Free Decision Making: Predefined sell rules remove emotional bias from selling decisions. “When emotions come into play, it’s easy to second-guess yourself or hold onto hope that a stock will bounce back.”
Market-Dependent Adjustments: The document advises adapting the 5%-8% loss-cutting rule based on market conditions: tighter stop-losses (5%) for volatile or bearish markets and a more lenient approach (8%) for bullish markets.
Preservation for Future Opportunities: The ultimate goal of strategic selling is not just to minimize losses but also to free up capital for future, potentially more profitable trades.