Monday, March 27, 2017

8 Week Hold Rule

I am a Growth Stock investor and I follow the rules of  Mr. William J. O'Neil (founder of Investors Business Daily)   When a stock makes a  +20%  gain or higher, it is always a good practice to harvest profits or atleast take some of the profits by lightening up on your position.  Seasoned investors avoid the greed of sitting tight on a stock for more gains. They know that the original risk in the trade is elevated because now you have your stock as well as your  +20%  profits at risk.  A true leading growth stock that makes a   +20%  gain in the first 2 to 3 weeks after a breakout is a sign that big institutions have an interest in acquiring more of those shares.  IBD has a an   "8 Week Hold Rule"   Institutions do not want to spook the market and show their true intentions.  The rule states that one should hold this stock for 8 weeks for a chance to have more gains and than evaluate the stock at the end of 8 weeks.   You can lock in your gains than or if the stock continues to gain profits and the general market is in a Confirmed Uptrend than continue to hold the stock until you get a sell signal.


How I Made  +6.26%  in 2 Weeks Trading  $ANET  (+163% annualized)


In My blog post on Monday March 13th, I had highlighted  $ANET  as one of the stocks that I was monitoring.  I tweeted the trade details on the tweeter on Monday  for educational purposes.  This was the stock that had broken out in volume  6  times the normal average daily volume during earnings on Feb 16th.  The stock rose more than  +20%  within days and began to consolidate for the next 12 trading sessions.  This was a leading stock in a leading sector and it kept appearing on several IBD screens including the IBD 50, stock spotlight, sector leader and stocks attaining new highs with institutional participation.  This stock invoked an  "8 Week Hold Rule"  If you did not have a position on this stock, you can initiate a new position during the consolidation period.  Market was still in a confirmed uptrend and   Technology ($XLK)  was the leading sector.  Following was the Trade Plan:

Entry: $124 (March 10th position initiated)
Profit: $136.40 (+10% target)
Loss:  $119.40 (-4% loss target)

Market was in a  "Confirmed Uptrend"   when the position was initiated.  Conditions in the market has worsened since than with  11 distribution days on record.  Most of those days are in a cluster in the last 10 days.  Currently we are in   "Market Under Pressure"    This is the time to be cautious in the market.  All the major indexex - $DJI, $SPY and $QQQ  are trading below the  34 day ema (exponential moving average).  $ANET  however is showing strength of a true leading stock with institutionl support because it is trading along the  8 day ema   Currently the stock is trading with  +6.26%   gain so far.  The risk in the trade will have to be managed with trailing stops because the market conditions have worsened.  That is a prudent thing to do.  You do not want to give up the profits you have made in this stock.  


Mentoring Service

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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.


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