When to Sell Stocks: Here’s why new highs on low volume can halt a big run

A great company is like a high-performance Porsche. Volume is a stock's fuel. If you desire to master when to sell stocks correctly, remember this analogy.

You can go on all day about the company's potential, its fabulous new product, and its incredible CEO. But, if a company's stock, after making a great run, begins to hit new highs on low volume, it will likely cease to act as a high-performance roadster.

In fact, the stock may begin to put on the brakes on its spectacular run.

When new highs keep occurring on low volume, it's the prime time to be looking for serious sell signals.

After a stock sees a volume dry-up at the peak, be ready to sell at least some shares when it drops very hard through the 50-day moving average on high volume. Or, the stock may shatter a long-term trend line.

Related stories

Mayuresh Joshi

Head of Research – Equity|William O’Neil India

• 
  Market at record highs, deploy exposure management strategy to maximize returns  
• 
  DAILY VOICE | India's long-term structural story will bring back FIIs once COVID is contained: Mayur...
• 
  Overhead supply can repulse a stock’s climb: Mayuresh Joshi of William O' Niel

When To Sell Stocks: Use the 50-DMA Line

A stock's volume often tracks above its 50-day moving average when its price climbs to a new high. This is where the stock has never been before.

There is no overhead resistance, and buyers should be luring offers with their increasing bids.

If this doesn't drum up the increased volume, you have a problem. Remember that the uptrending stock already has had institutional support behind it. That's how it got to be an uptrending stock.

What do you think would happen if the big-money funds stopped buying? The stock would fall under its own weight.

And if you find the stock consistently making new highs without solid volume, that's a sign that the tide may be turning. That is, sellers may have more influence over the stock's future prices than the buyers.

(Mayuresh Joshi, Head - Equity Research, William O'Neil India)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.