Every physician-investor needs tohave disciplines in place to protecttheir investment capital. Unfortunately,some investors need to experiencea bear market to fully understandthat concept. Some selling disciplines thatcan be incorporated in a solid investmentstrategy include the â€œinitial sell at 8%below the buy point rule,â€ which employsthe Wall Street adage â€œCut your losses andlet your profits run.â€
Here are a few more signposts to forgeselling disciplines, which, in turn, shouldassist in the profitability of investments:
• Uptrend broken on increasing volume.Uptrending stocks are what anysavvy physician-investor is looking to purchase.These are stocks that are performingwell and company growth is forecastedby the smart money. When the stockbreaks the uptrend on high volume, itmeans that the stock is no longer graduallymoving higher. With the growth in thevalue of the stock at a halt, investors needto understand that if volume is increasing,it means there is a large amount of selling.The higher the volume, the more heavysellers are dumping the stock. How manytechnology stocks did this at the end ofthe bull market? Nearly all.
• Relative strength uptrend broken;price uptrend broken. Investors try to findthe leadership in every bull market andrelative strength is a strong sign of leadershipbecause the relative strength of astock shows how it is doing in comparisonto all of the other listed stocks. If the relativestrength begins to deteriorate, thenthe stock is falling from the ranks of theleaders. If the price uptrend breaksaround the same time, an investor can becertain that the long price appreciationmay have come to a close. Again, howmany technology stocks did this at theend of the bull market? Nearly all.
• Stock breaks on heavy volume andrallies on lower volume and tighteningspread. Another sign of increased sellingis when a stock goes down on larger thanaverage volume. A lack of buying or demandfor the stock can be seen if the stockprice is rising on lower-than-average volume.That is a true sign that a stock is runninglow of fuel (or buyers). Once again,how many technology stocks did this atthe end of the bull market? Nearly all.
• Very little price progress made withhigher volume. This is a sign that a highamount of buying is taking place and theprice is not appreciating. It is a clear signof a group of huge sellers at a certainlevel. Simply, the sellers have a price targetto get out of the stock, before the sellingbecomes apparent and then a true pricesell-off should occur. It begs repeating;how many technology stocks did this atthe end of the bull market? Nearly all.
There are over 20 good selling disciplinesthat can be used to assist in protectingcapital, which leads to a higherpercentage return as the profits run andlosses are immediately cut, withoutbeing too damaging.
Michael Doran is a privatemoney manager affiliated with Sierra Capital Planning in northernCalifornia. He runs a fee-based business and a hedge fund forqualified investors. For more information, call 877-467-8657 or visit www.sierrainvestor.com. Christopher Nezbeth also contributed to this article.