Monday, January 16, 2017

8 Weeks Hold Rule


I am a   "Rules Based"   investor and since I only trade Growth Stocks,  I follow the trading rules based on  IBD  (Investors Business Daily)   principles.    One of the trading rules that the IBD has is the   8 Weeks Hold Rule.   The rule simply states:

If your stock surges at least 20% within 3 weeks of breaking out from a proper buy point, you should hold the stock for at least 8 weeks.   

This is a very simple rule but a lot of seasoned traders overlook the importance of this rule.   Mr. William O'Neil (founder of IBD)   found that when a stock makes such a dramatic move, it often goes on to make an even higher return after the stock goes through a brief consolidation period.   The fact that the stock surges   +20%   or more within  3 weeks  or less is a sign that the big institutions have decided to accumulate shares of this stock.   It takes them several weeks to accumulate all the shares that they want and as such they hold off buying more, once the stock surges 20% or more within a short time.   They usually come back within 8 weeks to buy more when the stock begins to consolidate or retrace a bit.   It is not unusual for such a stock to make an  additional  +20%  to  +30%  gain after consolidating for a few weeks.   Great winners exhibit this personality and as investors we have to be very cognizant of this rule. 


$PRI and the 8 Weeks Hold Rule


On Wednesday November 9th - the day after the elections - We had a   "Follow Thru"   day and the market just took off.    $SPY  (the leading indicator for the largest 500 US companies)  surged over  +6%  within  5 weeks.    IBD    types of leading Growth Stocks tend to do  2  to  3  times better than what the general market does.   $PRI   surged  +20%  within just 4 sessions.   During those 4 sessions, the daily trading volume exceeded  +10  times the daily average volume.   The stock surged past its proper buy point of   $58.91   to  $72.50  for a gain of  +23%   Most seasoned traders would lighten up on their positions and harvest the profits.  Others may choose to have a trailing stop to protect their profits.  There may be others who would have this stock on their Watch List and take a position during the 8 weeks consolidation period.


Follow up Trade on $PRI


$PRI  surged on November 9th and within 4 sessions it made over +23%  invoking an   8 weeks hold rule   For a trader who did not have a position on this stock prior to November 9th,  one could take a position within the 8 weeks hold period when the stock was consolidating.   Here is a Trade that you can follow along and test out this rule for yourself.   On January 10th ( the last day of the 8 week hold rule)  following trade was established:

Entry:  $70.80
Profit target:  $77.88 (+10% initial profit target)
Loss target :  $67.97 (-4% loss target)
Time target :  February 8th (prior to earnings reports)

The stock has already made  +5.36%   in the last 4 sessions.


Happy Trading!

Amin


DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.