Stock Falling? Fund Manager Reveals Four Warning Signs That Mean It’s Time to Cut Losses

Investors often keep holding a falling stock because they believe the company will eventually recover. Former Rakuten Securities fund manager Masayuki Kubota says that instinct can become dangerous when the chart begins sending several clear warning signals.

Kubota, who previously managed more than 200 billion yen in assets, identifies four signs that investors should not ignore: the share price falls after forming a second peak, a large bearish candlestick appears, a death cross develops, and the 13-week and 26-week moving averages both turn downward.

In a series on learning stock-investment techniques from *The Art of War*, Kubota uses an unnamed semiconductor-related company, called Company A, as a chart exercise. He compares the market to a battlefield and investors to commanders watching buyers and sellers confront each other. Sun Tzu’s principle is simple: attack when your forces are stronger, retreat when they are weaker, and do not enter a battle without a chance of winning.

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Will rise someday.

Company A’s buyers initially pushed the price higher and appeared to enter the sellers’ territory. A large bearish candlestick then marked a strong counterattack. Buyers tried to regain momentum, but sellers suppressed the advance, producing a second peak followed by another decline. As both moving averages weakened, the buying campaign began to collapse.

Kubota says many investors refuse to cut losses even after a price falls below their purchase level. Some add to their position because they believe a semiconductor stock “will rise someday,” while others simply do not want to sell at a loss. But when price action, moving averages and technical patterns all point to a weakening trend, he argues, investors should recognize that the situation has changed. In Company A’s case, failing to sell on the technical signals was followed by a much sharper fall. For Kubota, retreat means protecting available capital while conditions are unfavorable, not giving up forever.

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Do not want to sell at a loss.