Swing and Day Trading: Evolution of a Trader

CHAPTER 4

Swing Selling

So much time is spent determining what to buy and then when to buy that selling seems like an afterthought. Chapter 5 in Trading Basics (under the heading “Fourteen Selling Tips You Need to Know”) discussed the selling basics, but this chapter is going to drill down into swing selling techniques, most of them based on chart patterns.

You might think that a complex head-and-shoulders top, for example, would be a signal to short a stock and that is certainly true, but what if you own the stock? Should you sell it? Not necessarily. Many factors come into play when determining when to sell, such as the holding time (short-term versus long-term for tax reasons), trading style (an investment versus a trade), and anticipated extent of the decline. If price drops by only a nickel and then pretends it is a rocket reaching for the stars, selling would be a mistake.

Tax treatment of trading is beyond the scope of this book, and it changes so frequently that it is best left for discussion elsewhere. However, I once delayed selling to push a profit into the next year. That happened with a trend channel trade in Varco, now National Oilwell Varco (NOV). The first magazine article I had published (April 1996) discussed that trade. Delaying the sale by one day changed a potential 40 percent gain into a 27 percent one.

• Sometimes selling for tax reasons can be a mistake.

Let us move away from me complaining about taxes and look at chart patterns that tell when to sell. ...