Only learning when to buy a stock is like learning to fly a plane without learning how to land it. You can imagine the consequences.
You should learn when to book a profit or minimize losses.
A) Price Target
A price target is the price level, if reached, a trader should sell and take profits.
For instance, in a Bullish Separating Line candlestick pattern, the distance between the top of the top candle and the bottom of the bottom candle is the distance that the price will cover from the top. Perhaps an illustration will help.
After the price reaches that distance, supply begins to come in. It is hard for the stock to gain more than this. Thus, it is better to sell and take the profit after the target is reached.
B) Support
A support level is a level below which a stock has had difficulty breaking. Note that this does not mean the price won’t trade below that. It is just that in the past, it has had difficulty breaking below this level, and traders can expect the price to bounce upwards from this level. However, if the price violates the support and breaks below, it won’t stop until it finds another support level.
For instance, a Morning Star candlestick pattern signals a bullish reversal. Moreover, the low of the lowest candle also signals a support line. If the price goes down and breaks below this level instead of rising up, it is a false signal. It means that the bullish reversal assumption failed.
A trader should take the minimal loss caused by this trade and exit before the loss becomes too low. Remember, no strategy works 100% of the time. Our work as technical traders and chart readers is to make the probability in our favor, at least more than 50%.
