Selling is the hard half
Buying feels like a decision. Selling feels like an admission. That is why most people have a buying plan and no selling plan, and why they give back gains they had, and hold losses until they are huge.
Stage analysis makes selling as mechanical as buying. You bought because the stock was in Stage 2. You sell when it stops being in Stage 2, or when the stop you set on day one is hit, whichever comes first.
The stop you set on day one
In lesson 6 every entry came with a place where you would be wrong: under the base for a breakout, under the pullback low for a pullback. That is your first stop.
Then, as the stock rises, raise it. Weinstein moved his stop up behind the stock: under each new higher low it made, and under the rising 30-week line. Two rules make it work:
- Only up, never down. A stop moves in one direction. Lowering it "to give the stock room" is how small losses become big ones.
- Use weekly closes. Intraday dips come and go. Judge the stop on where the week ends.
The warning signs of Stage 3
Stage 3 is the top, and from the inside it rarely feels like one. It feels like a pause before the next leg up. Watch for these, usually two or three at once:
- The 30-week line flattens. It has been rising for months; now it isn't.
- The price starts crossing the line: below, back above, below again.
- The swings get bigger, not smaller. Big up weeks and big down weeks.
- Heavy volume with no progress. Lots of shares change hands, and the price goes nowhere: someone large is selling into the buying.
- The stock stops leading. Its relative strength line (lesson 5) rolls over.
In Stage 3, stop buying more, and tighten your stop. Many investors also take part of their profit here. The full exit comes when Stage 3 gives way to Stage 4.
A real top, week by week
Netflix was one of the market's leaders through the 2020 and 2021 boom. Here is how that run ended.
Selling on the close below the line did not get you out at the top. No trend-following exit does. It got you out with most of the gain intact, and it kept you out of a fall that took away three-quarters of the stock's value.
The same pattern ran through many of the leaders that topped in 2021. For Meta, PayPal, Shopify, AMD, Nvidia and others, the first weekly close below the 30-week line came roughly 13–29% below the peak. The falls that followed ran to 64–85%.
The false alarm
Now the honest part. Sometimes the price closes below the line and the trend is fine.
What was different? The line. At Netflix's break, the line had already flattened after weeks of Stage 3. At Uber's dip, the line was still rising, and the price got straight back above it.
That gives you a practical rule:
| The line is… | The price closes below it… | What to do |
|---|---|---|
| Still rising | For a week, and recovers | A warning. Tighten the stop; don't sell yet. |
| Still rising | And stays below for a few weeks | The trend is failing. Get out. |
| Flat or falling | At all | Stage 2 is over. Sell. |
Never wait out Stage 4
If there is one rule to remember from this lesson, it is this one. Once a stock is in Stage 4, below a falling 30-week line, sell it, whatever you paid.
Stage 4 doesn't end because a stock has fallen enough, or because it looks cheap, or because it was a great company last year. It ends when the selling runs out and a new base forms, which can take years. If that happens, you can buy it again at the next Stage 2 breakout, often at a far better price, and with the trend on your side.
Your selling checklist
- Has the weekly close hit my stop? If yes, sell, with no second-guessing.
- Can I raise the stop, under the latest higher low or under the rising line?
- Any Stage 3 signs: flat line, crossings, wide swings, heavy volume without progress?
- If Stage 3: no adding, tighter stop, maybe take part of the profit.
- If Stage 4, below a falling line: sell, whatever I paid.
Every US stock that moved from one stage to another after the last close, including leaders slipping from Stage 2 into Stage 3.
Questions people ask
When should I sell a stock?
Sell when the reason you bought it is gone. In stage analysis that means the stock has hit the stop you set when you bought it, or it has moved from Stage 2 into Stage 3 and then Stage 4: the price closes below its 30-week line and the line stops rising.
Where should I put a stop-loss?
Under the level that proves you wrong: below the base for a breakout, or below the pullback low for a pullback entry. As the stock rises, raise the stop behind it: under each new higher low, and under the 30-week line. Never move a stop down.
Should I sell when the price falls below the 30-week moving average?
If the line has flattened or turned down, yes: that is the end of Stage 2. If the line is still rising, a single close just below it is a warning, not a verdict: strong stocks sometimes dip under it for a week and recover. If the price stays below, or the line flattens, get out.
Will I sell at the top?
No, and you shouldn't try. A trend-following exit always gives back part of the move: in the 2021 tops on this page, roughly 13 to 29% from the peak. What it saves you is the rest: the falls that followed ran to 64 to 85%.
Should I average down on a falling stock?
Not in Stage 4. Buying more of a stock below a falling 30-week line adds money to a position the market is telling you is wrong. Sell first; buy again if it builds a new base and breaks out.