Last article, I covered how to buy stocks with less risk. In today’s post, we’ll cover how to sell stocks for more money. It doesn’t have to be stocks, the technique works well on crypto investments.
Emotions are our biggest risk when we sell. Wall Street preys on our heightened emotions to do what they do best, separate people from their money. Having a plan on when to sell is key. We’ll return to our Moving Average Convergence Divergence (MACD) model, to remove our emotions and have an exit plan before we buy.
Note: I made a mistake last post. The MACD doesn’t use simple moving averages. It uses exponential moving averages. The difference is exponential moving averages give more weight to recent data and less weight to past data. This makes them more responsive to price movements. I have switched to 5-day and 34-day exponential moving averages for the NASDAQ chart. See this piece on Stockcharts for more information.
We can apply the opposite logic of buying using the MACD. Sell when the black line is far above zero and the black lines crosses below the red. In most cases, we make money. We do this at the expense of frequent trading and greater time devoted to buying and selling. That’s not fun. That’s stressful. We want to trade less and make more money. If we look back at the daily chart of the Nasdaq, from the beginning of 2020 to present, we see many times where the black line dips below the red line and quickly reverses.
- Rule 1 when selling: Use the 5,34,8 MACD indicator to sell. Sell when the black line is above 0.
- Rule 2: Wait for the black line to cross below the red. This is our sell signal.
- Rule 3: How far above zero is enough? Use previous peaks in the MACD as a guide. If the black line is near or above previous peaks, be on the lookout to sell.
What are the red circles above? They are the first signals to sell, after buying when the MACD is below zero. Over the last five years, more than 5 red circles were generated.
Purple circles are secondary sell signals. The MACD did not go below zero first, and then the black crossed below the red line. If you missed selling at the red circles, purple would have been a second chance to take profits. I’ve highlighted 8, there are many more that occurred in this bull market.
The yellow circle looks like it will become a red signal in a few days. We highlighted the recent buy in our previous article. The Nasdaq may surprise us and bounce strongly higher. If the MACD gives a sell signal, we can expect lower prices ahead below the January lows. This was a weak bounce, recovering less than 50% up to the previous high. Note the green line, that is a 233 day exponential moving average. The Nasdaq went sharply below the green line, bounced back from below, and was unable to stay above the green line. 233 is another Fibonacci number.
In our next piece, we’ll amend our sell rules to reduce trading and increase profits by looking at the weekly and monthly charts.
Thanks for reading! Below is a pic of the settings I used to draw the above chart.
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Note: This is not financial advice to buy or sell specific assets. Consider it purely entertainment, and if you are kind, educational in nature. Everyone’s financial situation is different. Please speak with a proper financial advisor before making investment decisions.