Book: Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets
Chapter: 6
Relevant concept: A stock is said to move from stage 2 to stage 3 when the current market price moves below 150 DEMA (per Stan Weinstein) (200 DEMA in more contemporary literature). Since strong stocks seldom cross this threshold, you can put a stop at this threshold, which if crossed, closes the position at profit. As the stock climbs up on the price chart, the sell stop needs to be accordingly needs to be moved up, just below the 200 DEMA. This needs to be done on a regular basis. It can be weekly or max fortnightly. As and when the stock would enter stage 3 (and it can happen on low volume), you will be safely exited. Here’s a pictorial representation of the same (From Stan’s book):
The dark line is 150 DEMA
I use a variation of this exit system in my fresh buys, with the aim of capital preservation. Once a stock has given me around 15% profit, I usually place a safety GTT, Rs. 2 above my breakeven price. That way I remain protected from volatility, like we saw on June 4, 2024. Yes, it can sometimes throw you off of positions which may quickly recover, but it will almost always preserve your initial capital.