Eventually every good stock tanks and comes crashing down

My primary exit strategy when I first buy a stock is to sell should it fall 8% below my purchase price. If you lose 8% you only need to make 9% on the next stock to get your money back. A stock that loses 30% needs a 45% gain. A stock that loses 50% needs a 100% gain on the next stock to get even. Keeping the losses small makes it so much easier to recoup a loss.

Here are five signals to look for that foretell your stock is about to crash:

Climax Run - After a big rally over several months or more, keep an eye out for an unusually rapid price run of 25% to 50% or more over two to three weeks.

Exhaustion Gap - This is where a stock gaps up after after a big run as volume shoots much higher than average.

Price Run-up - A rapid price run-up for seven of the previous eight days in a row.

Stalling & Churning - Occurs when a stock has been climbing for some time. At the stocks peak you see trading volume that is 2 to 3 times more than average. With all this trading volume the price of the stock remains unchanged from the previous day. This shows that the number of sellers is increasing.

Over Extended - When a stock is trading 70% to 100% or more above its 200-day (or 40-week) moving average. This rule alone is not a reason to sell, but a secondary signal as a confirmation to other signals.

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