Profiting from the share market involves minimising losses and maximising profits. The only way to minimise losses is to sell a share if it is no longer profitable. How do we do this? To purchase a share, it was subjected to the trading plan and either rejected or accepted on a number of points. You will do this when deciding to sell the share as well. There are two basic selling criteria, a red OPI bar or a floating stop loss.

Red Overall Performance Indicator

You will be familiar with the OPI bar and know that when it is green, at least 2 of the charting indicators are showing positive signals. You can see the OPI indicator in your Portfolio.

Looking at a chart below shows that the MACD is already negative and the Stochastic is about to drop below the 70% line. If the price continues to drop, the OPI bar is likely to be bearish withing the next few days.

The chart for 2 days later shows this has occurred.This is a strong exit signal.

The price had trended up but has started to reverse. This forced the MACD and Stochastic to give bearish signals. Selling under these conditions is similar to an insurance policy. You insure your life, your home, even the clothes on your back. Then why not insure your investments as well? If the share price begins a significant decline, then you have sold out before that loss and preserved your capital. If you are wrong about the price going down, then it is a simple process of buying the stock back to profit from the next rise.

Reaching a Stop Loss

The second sell criteria to exit a position is called a floating stop loss. A stop loss is simply a price that you will sell at if the price drops to this level. In short, it is a question of what you are comfortable to lose on this trade if the decision process is wrong. Generally, 10% is used. If you are investing in 5 companies and 1 goes down by 10%, then you have lost only 2% of your portfolio. And if you make 5 or 10% on the other shares in the same time, you will still make a good return.

A floating stop loss is a safety net and all professional investors use one.

A floating stop loss tracks the price of a stock after you purchase it. Whenever a new high is reached it becomes the bench mark. If the price falls by the set % from that high then the alert is triggered. For example, the stock shown above reached a high of $1.00 then fell to $0.88. At $0.90 the FSL would have triggered, assuming that the default 10% setting was used.