Sometimes the Sale Is When the Trading Really Gets Good
Let me show you how selling is a powerful trading tool — and the big difference between revenge and a remount.
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Selling is one of the most powerful tools a trader possesses, and most traders use it badly. The problem isn’t that they sell at the wrong time, although they often do. The problem is that they treat every sale as the end of the story.
You sell a stock in one of two ways. You take profits into strength, or you get stopped out on the way down. Either way, most traders sell, move on, and let the stock drop off their screen for good. The sale becomes a verdict, and that is where selling loses its power. A plan to buy back restores your power. I call the buyback the remount.
The Timing Problem
Nobody can time stocks with precision. I have been doing this for a long time, and I still get the timing wrong regularly. A stock with great promise sells off right after I buy it, or keeps running right after I trim it.
The traditional approach is to buy, get stopped out, and move on. The flaw is that the stop is triggered by timing, and timing has nothing to do with the quality of your stock selection. You did the hard part right and let the part nobody can do well overrule it. Why give up on a stock with great promise just because your timing was off the first time?
Not every stop-out is the result of meaningless volatility. A stop caused by noise, such as a shaky market or a sector selloff, can be followed by a quick remount once the stock sets up again.
A stop caused by a meaningful technical shift, such as a heavy-volume break of a level that held for months, is different. You can’t just jump back in. The stock needs time to digest and discount the shift. Sometimes that never happens, and the stop was the market telling you the idea was wrong. But one stop is not a verdict. It is a reason to step back and judge the stock again.
Two Kinds of Remount
When I trim a strong stock into strength, my goal is often to end up with a bigger position. I sell some, which gives me room to be aggressive on the pullback, and then I buy back more than I sold. A trim done this way is accumulation that starts with a sale.
After a stop of a weak-acting stock, the goal is a second chance. I am not trying to end up bigger. I am letting a stock I still like prove itself again, with a small position and a new stop. And I judge it exactly as I would if I had never owned it. Has the chart improved? Has anything changed in the business? Are conditions better? The fact that it didn’t work last time is irrelevant.
What I Look For
Patience on the remount means waiting for a condition, not waiting until I feel like it. Whether I trimmed or got stopped out, I watch for the same things.
Selling dries up, and the stock stops falling while volume contracts. The stock settles into a zone, either the area where it based before its run or a new base after a breakdown. The outside pressure ends, because many declines come from a sector selloff or a related stock rather than the company itself. Buyers start to show up with a higher low or a day when the stock opens weak and closes strong.
I don’t need all of these at once. The first one that shows up is enough for a first piece, and I buy back in pieces across the zone rather than trying to pick the exact low. Trying to be too precise and trading too big go hand in hand, and buying in pieces solves both.
It Makes the Stops Easy
The biggest payoff of this strategy is that once you are comfortable buying back stocks you have sold, it becomes much easier to take your stops.
Most traders don’t skip their stops because they believe the stock will recover. They skip them because they are convinced they will sell at the exact wrong time. Everyone has watched a stock hit a stop at the low of the day and then turn and run without them. That is the Market Beast at work. So they sit there and take the pain, and a small, manageable loss turns into a big one.
When you know you will buy the stock back if it sets up again, selling at the wrong time stops being a disaster. If the Market Beast takes your stop at the low, so be it. When the stock turns, it will show you. The remount lets you escape the feeling that a stock is closed to you once you sell it. It isn’t.
I’ll admit it is a bit of mental gymnastics. Thinking of selling as insurance is another mental angle. A stop takes your risk to zero while the outcome is uncertain, and if you have to pay up to get back in, the difference is the premium you paid for that protection. Neither idea changes the math of a trade. They change how the decision feels, and in this business that is often the difference between taking the stop and sitting there taking the pain.
Two Warnings
After a stop, don’t jump right back in to win back what you just lost. That is revenge, not a remount. The stock has to earn its way back against every other setup on your screen.
And don’t make the most common mistake, which is the quietest one: taking a stop, deciding the stock was a mistake and never looking at it again. The stock that stopped you out may be the best opportunity on your screen next month.
Treat a sale as the end of the story and it is just an exit. Pair it with a plan to remount and it becomes one of the best strategic tools you have.
At the time of publication, DePorre had no position in any security mentioned.
