Principles  of  SCALIN (pyramiding)  in  Leading  Stock

(originally published on June 28th)

"When they came on the scene, Kmart was one of them, when in 1962 it only averaged about 2,000 shares traded each day. Jack Eckerd was another, which in April 1967 also averaged just 2,000 shares of trading each day. Both of these stocks went on to become huge winners. Even though the institutions at first would not pick up Pic'N Save, O'Neil did for his own personal account. He actually kept purchasing this stock on the way up, buying more shares every one or two points when the stock would rise. He did this for several years. In fact, he made 285 different buys on this stock in a span of 7 n 1/2 years. This is probably one of the most masterful examples ever of how to pyramid a winning position. At one point he actually owned 4.99% of the total stock outstanding (if you own more than 5%, you must register with the SEC). This stock would turn out to be one of his biggest winners ever, with some of his initial positions up 20 fold when he finally sold out and his profits were a main source for starting the newspaper Investors's Business Daily a few years later".

Mr. John Boik, the author of his book:

"How Legendary Traders made Millions"

tweeted this passage from page 148 of his book a week ago.  I shared this excellent content on my tweeter account for the benefit of retail traders and investors.  I would highly recommend that you pick up a copy of this book for your library.  He highlights some of the principles that some of the greatest and most profitable traders utilize to accumulate a 7 figure portfolio.

$AMZN   Scaling   In

$AMZN stock is an ideal one to study if you are a student and a follower of IBD(Investor's Business Daily)  CANSLIM methodolgy.    

• Don't buy  CHEAP  stocks.
• Buy  HIGH  and  Sell  HIGHER.
• CONCENTRATE  your portfolio to a few stocks.
• Always buy several  LEADING STOCKS  in  LEADING INDUSTRY  group on a  "FOLLOW THRU"  day.
• SCALE IN (Pyramiding)  when the stock begins to quickly advance to  +5%  from your initial purchase.
• Have a  PLAN  in place to  SCALE OUT  to mitigate the risk of earnings nasty surprise.
• Follow the rules of exiting a position when losses mount to  -7%  to  -8%  from your initial purchase.
• HARVEST  profits when the stock gains  +20%  to  +25%.

$AMZN  became a $1,000 stock on Oct 27th 2017.  16 million shares (4.5 times the daily average trading volume) traded that day.  This was a very clear signal that institutions were on their way to accumulating this stock.  This year on Jan 31st (just 2 years n 3 months after becoming a $1,000 stock), it became a 2,000 stock.  Once again it traded 16 million shares (4 times the daily average trading volume) that day.  Following is classic way one would scale in with the winning stock such as  $AMZN.  

1. Friday April 3rd, initial small starter test position at  $1911.15 when the  $SPY  had a  "FOLLOW THRU"  day.  Stock had been trading tightly and orderly for 3 weeks.
2. Tuesday April 7th, a second starter test position at  $2017.11  when  $QQQ  had a   "FOLLOW THRU"  day.  Initial purchase was already  +5.5%  within 2 days. 
3. April 13th, within one week of trading, stock is  +10.91%  on average of the 2 positions initiated.  Faster moving 10 day simple moving average (sma) and the 21 day exponential moving average is surging up and away from the slower moving 50 day sma.  $QQQ  is still below the 50 day sma.  Stock is clearly the out performer of the growth index.
4. April 24th, scale in at  $2185.95.  Stock cleared the  $2150 resistance just the day before.
5. April 29th, just a day before earnings report is due, harvested the profits from 2 original starter positions for average gains of  +18.72%.
6. May 1st, renter at  $2336.80.  Earnings reported the day before bounced the stock up  +4.5%.  There was some profit taking the day after earnings were reported with a surge in selling volume.  The stock barely budged 90 points.
7. May 5th, scaled in at  $2340.  Technically the faster moving 10 day sma as well as the 21 day ema are smoothing out and running parallel to each other and rising slowly and methodically.
8. May 19th, stock has been consolidating for the last 5 weeks.  Institutions are fully supporting the stock at  2400  level.  Institutions tend to look at the round numbers from which to propel higher.  Scale in at  $2429.83.
9. May 27th, the stock bounces off the 21 day ema.  Slower moving 50 day sma is catching up to the rising 10 day sma and 21 day ema.
10. May 28th, scale in at  $2384.33.
11. Stock is hovering tightly around the  2500  mark for the last 2.5 weeks.  Initial trailing stop for the stock is monitored around the  2300  level which is closer to the  34 day ema.
12. June 15th thru June 19th week, the stock is trading tightly like it hasn't done in the last 4 months.
13. June 22nd, scaled in once again at  $2684.50.  
14. June 26th (last Friday) we had a major reversal and a  "distribution day"  on both the  $SPY  as well as  $QQQ.  Stock barely budged 18 points.  It is held up at the 10 day sma while the leading growth stock index  $QQQ  plummeted down to the 21 day ema (that's really not bad for the index that is  +12.79%  year to date.  $AMZN  on the other hand is  +45.55%  year to date.  It clearly is out performing the market.

Update

Added position:

1. July 1st at $2757.99
2. July 2nd at $2912.01

Currently the average for 8 positions is $2543.17.  It's +22% as of Friday Sept 11 close.  On April 29th, +18.72% profits were harvested prior to earnings report.  Market is under pressure right now and it's time to be defensive.  One must never give up the profits of  +20%  to  +25%  made in a stock.  $QQQ  the leading Growth Index has dropped  -10.92%  since the market top it reached on Sept 2nd.  $AMZN  on the other hand has dropped  -11.75% and it's now trading below the 50 day simple moving average.  Institutions usually support the stock at 50 day sma.  It needs to consolidate and hold at 3250 to give me confirmation that institutions are going to support this stock.  Starting Monday morning Sept 14th, it will be prudent to protect the profits made since  April 29th by scaling down.  The last time when market dived after Feb 19th all time highs, $AMZN   dived  -25%.  

Good luck trading this coming week.

Build your watch list and start raising CASH now.

It may take several weeks for the market to get it's footing.

Take a breather now and polish your trading skills instead.

Learn from the mistakes we made during market correction from Feb 19th to March 23rd.

Amin