How to Trade Growth Stocks

Every trade has a  Window Of Opportunity  associated with it.  For me, that window is identified by taking into account the general market conditions and weighing all of the variables for positions I'm considering.

When I'm using IBD (Investors Business Daily) CANSLIM system of trading Growth Stocks, the first thing I look for is the momentum of the stock.  How do I determine momentum, you may ask?  I follow 3 simple steps as a part of my routine:

1.) Use The Most Recent Data

For starters, I pull up a 6 month daily and weekly charts on the stock to give me some insight on how institutions are behaving with the stock. 

"Keep in mind that institutions are highly informed and quite well versed in trading so their investment behavior has a significant impact on the value of a particular stock."

I use this same reasoning to help me pinpoint my window of opportunity.  If the chart shows increasing volume over the most recent 30 day period, that means the big dogs are getting behind this stock.  For me, that's a really clear signal that my window of opportunity is approaching.  

Another key data point for me is the Relative Strength (RS) line on IBD charts.  I use a very strict set of criteria on any position I'm considering and for me, the RS line helps me to quickly identify whether a stock is a true leader of the pack.  If I'm seeing a 92 RS rating that's still pretty good but I want to see 95 or above before looking any further into an opportunity.  It's best to stack the odds in your favour.  There is no guarantee that stock will perform well and that is why it's a good idea to keep monitoring the stock for selling volume from the institutions.

2.) Don't Trade On Earnings

When it comes to earnings, there are two schools of thought.  Some people like to trade around earnings and have had a lot of success with it.  It's not something I choose to do, however, because it doesn't fit into my personal trade philosophy.  I think it really just boils down to risk management.  I always trim back the size of my existing position heading into the earnings or utilize  "Collar Trade"  with options to fully protect the very liquid stock in my portfolio.

For me, the reason it's risky to trade around earnings is because you can't predict how institutions will react to the the information.  Even when a report looks good, institutions can react negatively.  I've always struggled to understand the "why" in these situations and since I can't really figure it out, I remove the variable.  I like to wait 2 to 3 sessions to confirm that institutions have really "digested"  and settled down after the earnings release before I decide to take a new position or reestablish the original position. 

Another thing that gives me a level of comfort is looking at other stocks in the industry group I'm researching.  If they're running in the right direction - you better believe I'm paying attention. 

   

3.) Trade During Uptrends

This is probably the most important factor in pin pointing my window of opportunity.  Given that my criteria are so strict, I need to make sure that the biggest market barriers aren't in my way.  Seeing the phrase  "Market in a Confirmed Uptrend"  in my IBD® Market Pulse removes the last barrier for me.  I don't really understand exactly how IBD® uses the data it gets to make such a statement - but I trust it. 

With trading, there are variables all over the place and it's basically impossible to keep track of all of them.  Having a market in a "Confirmed Uptrend"  means that I can settle down, tune out the noise, and get back to business - cultivating my watch list.

Growth Stock Coaching

I have been getting a lot of inquiries from my readers asking for a weekly session on  ZOOM  platform.  Lot of you enjoy and appreciate receiving my Stock Watch List that I post on my blog.  Some of you have asked if I could go over my watch list and share what I see in the stock charts.  I am giving it a lot of thought and would consider offering a weekly session to help you all with trading successfully and profitably.  Please give me your feed back and let me know if such a coaching product would enhance your trading skills.  Market has done so well since  2015  when I started this blog platform.  $QQQ  the leading Growth Stock Index I follow is  +230%  in the last 6 years.  One could have done 2 times better  investing utilizing the  IBD CANSLIM  methodology that I utilize. 

Happy Trading!

Amin (investorspotlight@gmail.com)