Some of you are clinging to hope that, hopefully, one day, that stock will bounce again 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 MBT for demonstration purposes only. Have you checked the top 10 players chart for last week? See the chart below.
Participants with a 100% Buying and Selling Activity from Jun-27-2017 to Jun-30-2017 at 03:30PM:
8 out of 63 participants or 12.70% of all participants registered a 100% BUYING activity
16 out of 63 participants or 25.40% of all participants registered a 100% SELLING activity
Top 10 Players’ Buying Average: 87.0386
Top 10 Players’ Selling Average: 87.0191
Even if 6 out of 10 players registered a negative Net Amount, my overall sentiment for MBT’s Top 10 Players chart last week is NEUTRAL. What makes it neutral? There are more players with a bigger buying average than selling average.
That’ll make you think, “Hmmm, the overall sentiment of last week’s top 10 players’ chart was neutral. But 6 out of 10 were net sellers. Can I manage to wait some more?”
I’m sure you’d like to see the Top 10 Players chart for the whole June 2017. See the chart below.
Participants with a 100% Buying and Selling Activity from Jun-01-2017 to Jun-30-2017 at 03:30PM:
12 out of 93 participants or 12.90% of all participants registered a 100% BUYING activity
16 out of 93 participants or 17.20% of all participants registered a 100% SELLING activity
Top 10 Players’ Buying Average: 87.0185
Top 10 Players’ Selling Average: 86.9695
My overall sentiment for MBT’s June Top 10 Players chart is BEARISH. I show that 6 out of 10 players registered a negative Net Value and only 5 out of 10 players had a bigger buying average than selling average.
How do you know if the sellers are almost done? 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?
What have you learned from this post? Comment below.
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