This one is easy because you can run a chart (go back six months, a year or even five years) and see the peaks and valleys. You look at the high point (it’s formally called “resistance”) and put your order in to sell at that point or just below that point: remember, don’t get greedy.
A stock may roll between $3 and $4.50, but it only hits $4.50 once in a while. Put your order in to sell at $4.25. You’ll probably want to put in a “Good Till Canceled” (GTC) order (and renew it if the sixty days expire). Look at the following charts:
You can see in Royal Oak Mines (RYO) that the roll range changes. Most people freak out if the stock goes down—especially after they just bought it. Only once in a while have I been burned by this. You see, you have two choices. Look at a changing roll pattern with Cineplex Odeon (CPX).
For years (this is a one year chart) it has gone between $2.50 and $3.50. Then it dropped to $1.50.1 had just purchased 2,000 shares at $2.50 and then another 2,000 at $2 when it dropped to the $1.50 range. It even hit $1.25 once or twice. Now the two choices:
1. Just wait it out. It may take several months for it to get back up to $3 or $3.50. But at least you won’t lose.
2. Hang on to what you have and wait to see if it establishes a new roll range. A variation of this is to look for a significant bottom, real support and a genuine move back up in the stock. That’s what I did. I bought some at $13/8 and $1 x/i and sold most at $l7/s and a little at $2. It went back to $172 or so and I bought back in.
As we were going to press with this chapter it looked like Cineplex Odeon (CPX) was establishing a new roll range. I’ll make more cash flow on quick rolls than anything I’d lose on the dip in value of the 4,000 shares. Plus, I still have the 4,000 shares with two more choices:
1. Continue to hang on.
2. Sell, take the loss, and get the cash moving on this lower roll range, or invest elsewhere.