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Some of you are clinging on pure hope that, hopefully, one day, that stock will rebound and reverse your situation from a -30% unrealized loss to a +30% unrealized gain. Some of you are undecided on whether you will continue to hold or sell at a loss to preserve your capital.
Today, I’d like to share with you one of my many methods or ways of checking if it’s worth it to extend or adjust your personal risk tolerance or not. I’d like to make it clear that I am not saying you should always extend your risk tolerance. That’s not the message I am trying to send across. What I want to share with you is a data-driven approach on how to tell if your decision to extend your risk tolerance is worth it or not.
When torn between holding (even beyond your risk tolerance level) and selling, I suggest that you check the Top 10 Players’ sentiment. That will help in building a data-driven conviction in your decision.
For example, if the stock’s price hits your stop-loss but you see that the majority of players is buying the dips, you can consider adjusting your risk tolerance % since the majority is buying the dips, anyway. In the same way, if the stock’s price hits your stop-loss and the majority of the top 10 players does not show any interest in buying the dips, maybe it’s really time to let go and sell. That’s what I call a data-driven decision. Does that make sense to you?
I’d like to talk about ALT for demonstration purposes only. Have you checked the top 10 players chart for last week? See the chart below.
Criterion 1 was bullish. Criterion 2 was bearish. Criterion 3 was bearish. Overall sentiment last week was bearish.
What are these criteria that I’m talking about? If you’re my Stock Signals client, please refer to our User’s Manual. Proceed to the page where I explained the Top 10 Players calculator.
But seeing the Criterion 1 being bullish, that’ll make you think, “Hmmm, the overall sentiment of last week’s top 10 players’ chart was bearish. But 6 out of 10 were net buyers. Can I manage to wait some more?”
I’m sure you’d like to see the Top 10 Players chart for the whole July 2016. See the chart below. I got the same observation. Criterion 1 was bullish. Criterion 2 was bearish. Criterion 3 was bearish. Overall sentiment was bearish.
How do you know if the sellers are almost done selling? Once you’ve noticed that the volume is getting thinner. If the price is dropping and volume is getting flimsy each day, it’s a possible sign of the capitulation’s end.
Who cares if capitulation is about to end? Well, it’s a possible start of a rebound. I’d like to re-emphasize that I didn’t write “it will surely happen.” So we need to consistently monitor the stock’s direction to confirm whatever forecast we may have.
With these data-driven assessments I’ve written, what does your risk tolerance and conviction tell you? Can you afford to muster the courage to hold some more and sell on strength to minimize your losses or you’ll just sell everything at once?
The Stock Signals has separate features for short-term TRADERS and long-term INVESTORS. Do you like how I guide traders and investors in the Stock Signals? Do you like how I produce my own tools that will make decision-making easy? Subscribe today so you can start familiarizing our discipline, psychology, system, style, and user-interface. It’s all about MAXIMIZING GAINS and MINIMIZING LOSSES in the Stock Signals.