Why  I  Trade  Growth  Stocks 

I am a Growth Stock Investor and I follow Mr. William O'Neil's (founder of Investors Business Daily) methodology of trading Growth Stocks.    Studies by IBD has shown that Growth Stocks tend to perform  2 to 2.5 times   better than the average performance of the market, as measured by the performance of the $SPY.  Basic and very simplified strategy involves:  

1. Buy  "High and Sell Higher".
2. Do not   "Buy and Hold".
3. Do not  "Buy Cheap Stocks".
4. Buy  "Right and Sell Right".
5. "Harvest Profits"  as the stock moves higher.  Sell into strength.
6. Use  "Trailing Stops"  to protect profits and mitigate losses.
7. Concentrate the portfolio to a few leading stocks and don't diversify.
8. Get rid of the laggards in your portfolio and use the proceeds to invest in the leaders in your portfolio.
9. Mitigate risk by reducing the position size during earnings report.

For the year 2020, Growth Stock Index  $QQQ   is  +47.63%  while the General Market Index  $SPY  is  +16.16%.  Growth Stock Index has out performed the general market by  2.95  times. 

 

Studies of IBD has shown that most growth stocks that are fundamentally and technically sound, tend to rise  +20%  to +25%  and then form another base.  Stocks will move sideways for a while to digest these gains before they start making another run higher.  This is the behaviour of the institutions on display.  They have to accumulate a large position in the stock of their choice and it takes them several weeks to accumulate their entire position.  For retail investors, it's quite OK to take these profits and and use the proceeds to invest in other growth stock. 

One of the emotions that we as retail investors have to constantly deal with is the GREED factor.  It's a euphoric feeling when the stock attains a profit of  +20%  to  +25%  within a couple of weeks or less.  Just accept the fact that as a retail investor, you will never sell your stock at the very top or for that matter buy it at the very bottom.  Learning to sell your stock into strength takes a lot of discipline.  Market will be volatile heading into the new year.  February is traditionally one of our worst months of the year.  Earnings season will be upon us in 2 weeks.   I just have to remind my readers that one of the biggest risk with exposure to stocks is TIME.  The longer you have your stock position with profits in the market, greater the risk you are exposed to of the market retracing and giving up the profits on your stock.  

https://youtu.be/yFBFtGziGYo

I am taking the liberty of attaching the video that in my view is the best way to give one an over view of what the IBD system of trading is.  I have watched this video multiple times and I use it as a reference to help guide me.  Host of the show is Mr. Joseph Fahmy (an educator and an investment advisory representative at Zor Capital LLC).  Participants are Tom canfield (Very successful Fulltime day trader that utilizes the IBD Marketsmith tool) along with Irusha Peiris (Product manager of Marketsmith and the host of IBD podcast) and finally Mr Mike Webster (renowned and very successful former Portfolio Manager at IBD)

Happy Trading!

Amin