Charts (Sell Patterns)
When to sell a stock is a more difficult decision than buying a stock in my opinion. If you sell too early then you may miss a significant move upward and if you hold a stock too long, then it may drop all the way back down to what you purchased it for or even below that. Stocks have a tendency to drop more quickly than they rise. For example it may take several weeks for a stock to go from $50 to $100 but it may only take a few weeks or even less for it to drop from $100 back to $50. So as an investor you should pay close attention to what the charts look like when you decide to buy or sell a stock. Some chart patterns that warn me of a potential reversal include a Climax Top off a Parabolic Move, Double Top and the Head and Shoulders Top.
1. Climax Top Off a Parabolic Move
This pattern occurs when a stock rises very quickly out of a base and gets overextended. Stocks in a Parabolic Move can double or triple in value in a very short period of time (usually less than two weeks). As an investor you certainly don't want to be one of the last passengers on the train and get quickly thrown off. Some examples of this pattern are shown below.
Notice the quick move upward in
Another example of a Climax Top Off a Parabolic
Move is demonstrated by
As you can see stocks that go up very quickly, in a Parabolic Move, can also come down just as fast. My advice is if you buy a stock and it doubles or triples in value in a very short period of time (1 to 2 weeks) take your profits and congratulate yourself for a job well done. If you become greedy then you could lose most of your gains as the above examples indicate. Furthermore if your buying a stock in this type of move be very careful and watch out for the Climax Top if the stock is trading on its biggest volume day.