Simple Rules of Growth Stock Investing

"Recurring patterns occur over and over because stocks are driven by humans and human nature never changes."

By Jesse Livermore (Greatest stock trader of our times)

https://youtu.be/KOVEzCIGAyA

"The first step in learning to pick market winners is for you to examine leading winners of the past to learn all the characteristics of the most successful stocks."

By William J. O'Neil (Founder of Investors Business Daily)

I have posted over 270 blog posts and several thousand tweets and comments on tweeter and linkdin platforms over the last 5 years.  It amazes me that most of the retail traders currently are underinvested in the stock market.  There is so much fear and uncertainty - mostly created by the news media and all the opinions that self proclaimed GURUS express on tv and financial publications.  It's best to be data driven because opinions and feelings about the markets are often wrong.  Here is the real data:

• $QQQ - the leading growth stock indicator is just 3.17% away from the all time high attained on Feb 19th.
• $QQQ investing strategy (IBD strategy on page A16 of May 25th publication) is +23.85% from the follow thru day of April 3rd.
• $QQQ lost only -8.57% from Feb 19th high by exiting at market open February 26th when the market went into correction.  
• Following the IBD (Investors Business Daily) rules of investing in $QQQ etf strategy would have resulted in a net gain of +15.28%. 

Market Fools the Majority

Let Data Drive Your Decision

There are lots of rules that Mr. William J O'Neil (Founder of Investors Business Daily) has laid out in his book:

"How to Make Money in Stocks" (4th edition)

If you are new to investing, it's best to concentrate on a few critical rules to follow and acquire the expertise over time.  You can start building on your knowledge by observing some basic principles and applying them to your trading and investing.  Easiest ones to understand is to follow the lead of the institutions.  They account for over 70% to 75% of the daily trading volume in the market.  They can't really hide their intentions because it shows up on the stock charts as  "Sky Scrappers"  on the volume bars.  Stocks often gap up and will advance very rapidly within a few days to couple of weeks.  They will tend to rest after making a rapid advance and consolidate for a while.  They will build a base before propelling higher.  

Results of Stocks on My Watch List

During the weekend I usually go over 150 to 200 stock charts to identify the leading stocks that indicate to me that the institutions are showing an interest in accumulating.  Some of these stocks keep appearing over and over every week.  It's as if these stocks are just waving at me and saying  "Buy me buy me".  I focus on the most liquid stocks when ever possible.  Rarely do I initiate a position on stocks that are under $50 or trading less than a 1/2  million shares per day.  Institutions look for stocks that are very liquid and stocks that have a market cap of more than $1 billion.  Institutions often hedge their positions with options on stocks and thin stocks tend to have a very wide bid/ask spread.  That's a big negative for them.

Here are the results of some of those stocks during the last 7 weeks.  They were initiated the very next day that IBD identified the  "Follow Thru"  day with the $SPY on April 3rd and  $NASDAQ  on April 6th.  

1. $AUDC ... +36.20% 
2. $DXCM ... +53.84%
3. $DXCM ... +25.60% (add on position on April 20th)
4. $GOLD ... +33.49%
5. $NEM  ... +30.41%
6. $NVDA ... +20.65%
7. $MRNA ... +110.30%
8. $MRNA ... +30.0% (add on position May 8th)

If you took a position on some of these stocks that are listed, it is prudent to have a stop loss in place to lock in gains.  It's quite ok to take some partial position off to mitigate risk of losing the gains made.  These stocks are currently trading above the 20 day sma(simple moving average) and consolidating to build a base.  Monitor them as they might present the opportunity to add to your position or initiate a new position.  Money is made by concentrating your portfolio to a few leading stocks instead of diversifying your portfolio.

Happy Trading!

Amin