Midweek Trade Review From EPIC Insights Weekly
Talk to most investors and their first question will be, “What should I buy?” While I understand the desire to find stocks that will deliver quick, substantial profits, I think a better question is, “What should I buy and when should I sell it?”
Having worked with many investors over the years, the ability to develop and then follow a pre-determined sell discipline is both difficult and essential.
When I trade, I will often use a combination of fundamental and technical factors to determine exit and entry points. As an example, let’s review a stock pick I made in my November 23rd edition of EPIC Insights Weekly. In that letter, I recommended Target (TGT) based on valuation.
Click to View Full ChartLooking at a chart of TGT, the arrow represents where I went long the stock. With the stock in a confirmed downtrend at that point, this trade was justified by the low valuation the market had given the shares. Over the past three weeks, I have seen the shares increase 34% – a large return in a very short time period.
With the large gain, the question becomes when do I sell? From a valuation perspective, I have always felt TGT’s core business was worth $45. Using technical analysis, I would expect a rally into the $42-43 price range (represented by the box on the graph) as it would recoup 50% of the loss that occurred during the 3 month downtrend.
Combining the technical study with my view of TGT’s fair value, I will aim to sell my shares at $43. Having bought the shares at a low level and determined my exit price, I develop a strategy to realize my gains in the future. This will help eliminate confusion over what to do as the price rises and enables me to focus on finding my next trade idea.
Sean Hannon, CFA, CFP is a professional fund manager and weekly contributor for StockTradingToGo.com. He runs EPIC Insights Weekly, the free Sunday market newsletter, and is the founder of EPIC Advisors, LLC.
