A sell signal is useful in alerting you to dispose of your investment at the desired price. I prefer using a sell signal based on the 30% annualized rate-of-return, but you can create a signal based on your own desired rate-of-return. Here’s how it works:
Suppose you purchased 100 shares of stock at $10 per share on January 1, 2012. Today, May 4, 2012 (124 days later), the share price is $11 and the sell signal is $10.93. Today is a good day to sell the shares because the share price exceeds the sell signal. I determined today’s sell signal by making the following entries into the following spreadsheet (found in App, sell signal):
The first result is a chart (below) that compares today’s share price, $11, with the sell signal. The sell signal is the share price expected from a 30% annualized rate-of-return after 124 days, $10.93.
The second result (chart below) is the ratio of today’s share price to today’s sell signal. Any ratio of 1.0 or higher is justification for selling the shares.
The third result (chart below) is a line graph of the daily annualized rate-of-return during the first year. Notice that the line graph reaches the 30% annualized rate-of-return on the Y axis at 365 days on the X axis. The line graph extends higher after the first year of holding.
You can download the calculator by clicking on this link, App, sell signal.
Copyright © 2012 Douglas R Knight
Appendix
Create your own sell signal calculator with the following spreadsheet formula:
signal = purchase price * power (1+R, N)
- R = annualized rate-of-return
- N= (today() – purchase date)/365
