Page 1133 - How to Make Money in Stocks Trilogy

Selling Checklist 119

A Simple Selling Game Plan

The Selling Checklist covers the basics. There are more advanced sell sig-
nals to look for, and you can learn more about them in Bill O’Neil’s classic
work, How to Make Money in Stocks, or by attending an IBD workshop and
your local IBD Meetup group.
My goal here is to make sure you start out with a clear, easy-to-use plan—
one you can begin using immediately to both grow your money and avoid
any serious mishaps. Here it is.

• YOUR SIMPLE SELLING GAME PLAN •

• Sell most stocks when they go up 20%–25% from a proper
buy point.
• Always sell if a stock drops 7%–8% below what you paid
for it.

• Take defensive action as a market downtrend begins.

These 3 simple rules—both offensive and defensive—will serve you well.
We’ll also get into other warning signs and sell signals, but when in doubt,
stick to these 3 core principles.

3-to-1 Profit-and-Loss Ratio
The first step to making money in the market is to protect the money you
already have, and sticking with this selling formula will help you do that.
Notice how the first 2 sell rules above give you roughly a 3-to-1 ratio:
20%–25% profits vs. losses of no more than 7%–8%. If you stick to this basic
selling plan, you can be wrong on 2 out of 3 stocks and still come out slightly
ahead or with just a minor loss. The next table shows how that works.