Thursday, September 16, 2010

How To Tell When Institutions Are Selling

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I had a reader want to know how to tell when institutions are selling stock. I know that in previous articles, I've talked about How Do You Tell When Institutions Are Buying Stock? My reader is on the right track here in tracking the institutional, or "big money", and watching where it is flowing. When the big money flows into a stock, it has the effect of driving that stock's price up. When it starts selling, it has the opposite effect. Because demand for the stock is falling, it makes the price fall. Once you see signs of a stock weakening you want to start exiting as well. But how do you know?

Your first sign is the general market indexes. Once distribution days (days the market closes lower on higher volume) start stacking up, this means that the institutions are starting to sell. The stock you own might not shows signs of a weakness right away. But even the best stock will fall in a market correction.

That's why you also need to pay attention to the stock itself. When you start to see the stock's price close slightly higher on lower volume (stalling action) or closing lower on higher volume (distribution) you'll know that money is leaving your stock.

Combine what you see from the general market direction with your stock. Pay close attention to the charts of each. Keep an eye on the Big Picture column. Only invest when the market is in a confirmed uptrend. You'll find that experience will also teach you how to spot a weakening stock. Study your past trades to see how they've acted. Learn from your mistakes.

Don't be afraid of selling to early. Feel free to lock in some of your gains by selling at least a portion of your position. There's always opportunity in the market during an uptrend.

Good luck in your stock market investing journey.

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