These 2 key technical levels can be good barometers of when to buy or sell.
Support occurs when a security bounces off a series of lows in price. Basically, it's the level at which demand for a security is strong enough to stop the security from falling any further. However, once a security breaks a support level, it could mean further downside pressure. Therefore, many investors place stop orders just below support to protect themselves.
Resistance is the opposite of support—when a security bounces off a series of highs. Here, the supply is strong enough to stop the security from moving higher. When a security struggles to break through resistance, it might be time to think about getting out and taking your profits.
2. Target profit/loss ratio
You can set profit and loss targets from a purchase price. For example, a rule could be a 2:1 or 3:1 profit/loss target. You can also use percentage terms, such as 10% profit/5% loss target or if you want something with a tighter stop a 9% profit/3% loss target.
3. The 1% rule
Provides a general rule of thumb that says investors should set their max loss at 1% of their liquid net worth. For example, if you have $50,000 in savings, you shouldn’t stand to lose more than $500 on any one investment.
4. Time exit strategy
Defines the maximum amount of time you plan on being exposed to a particular investment. What you do once you've arrived at that time is up to you, but most traders use their time exit signal as an indicator that they should, at the very least, re-evaluate their investment. Time exit strategies can work when the security is moving sideways for an extended period of time, when prices are moving against you but not enough to trigger a stop-loss (an order that triggers at a specific price which executes at the next available price), or when it's moving up too slowly for your liking.