GROWTH  Stock  Investing

Lesson 1: Penny Stocks Will Ruin You

Yesterday I came across a post  that I thought was quite insightful and well written.  What really jumped out at me was the opinion of penny stocks because it's one that resonates with me.  There are lots of ways to make money investing but I am convinced that penny stocks will never get me to my financial goals.  I prefer to manage my risk by working only with true growth stocks.  The sooner you learn to steer clear of penny stocks the better as far as I'm concerned.  Personally I prefer to be involved with stocks that are priced above $40.  $100 or higher is preferable - especially with average daily trading volume of 500,000 shared per day or higher.  These are institutional types of stocks and I prefer to fish where the big boys in the market are fishing at.

Lesson 2: Know Your Trading 

Personality

In my role as a Meetup coordinator for IBD (Investors Business Daily) and as a mentor to new traders for the last 7 years, I am constantly exposed to people who employ all kinds of different investing methods.  For the last 25 years I've thought of myself as an investor but recently it occurred to me that I've actually become a trader.  If you're wondering what the difference is, it really boils down to your time frame. 

I simply don't have the stomach to sustain the types of double digit losses that investors might see over the life of their positions.  Also, I don't have the patience to sit in a position for more than 8 weeks at a time so long term involvement doesn't really interest me.  Knowing that, I've committed myself to planning all of my positions from the perspectives of a trader instead of as an investor.  However, if the stock makes a substantial gain (+20% to +25%) within 8 weeks, I will take partial profits and allow the rest of the position to consolidate and stair step additional when the stock moves to higher ground.

Lesson 3: Have A Process

My trading process has been methodically put together through years of classroom training as well as trial and error.  I am a Growth Stock trader and the core system I follow is the IBD style of investing in Growth Stocks.  Concentrate my portfolio to just a handful of stocks/etf's  and limit my exposure to no more than 12 to 15 stocks when the market has a  "Follow Thru Day."  Within a short period of time, I quickly identify the true market leaders that are out performing the general market.  Put more money to work to the ones that are helping me build my portfolio and trim back the ones that are not advancing as fast or worse - are losing money.  According to IBD, most retail traders with a portfolio size that is no more than a $million in size ought to have just 8 to 12 stocks.

No matter what process you decide to use, it's only going to work if you stick with it.  The moment you start to stray or take liberties, you've increased your risk along with your chances of losing money.

Lesson 4: Follow Rules

IBD has several Buy Rules and Sell Rules.  As a retail trader, it's critical to follow these rules because they are proven rules that Mr William J O'neil (Founder of Investors Business Daily) published in his book:

How to Make Money in Stocks

I keep a copy of his book in my office and by my bedside for a quick reference.

Infact I take this book with me when I travel or when I go on vacation or a cruise.

He wrote these rules to help him navigate the market and mitigate risk.  Master these proven rules and do not deviate from its true concept.  Mitigate risk by cutting losses to no more than 7% to 8% from its entry on every stock that you initiate a position on - no exceptions for someone starting out.  Most retail traders will never make much of a progress with their portfolio if they don't minimize their losses.  Psychologically it destroys your confidence everytime you open up your brokers platform and see that losing stock position stabbing at you. 

Happy Trading!

Amin Hemani (investorspotlight@gmail.com) 

 

Institution Stocks of Interest

IBD (Investors Business Daily) has an  '8 Weeks Hold Rule'  for stocks that show strong institutional demand.  The rule suggests that if the stock attains a  +20%  gain or higher from its proper buy point in less than 3 weeks, one should hold it for 8 weeks and evaluate the stock at that point.  Mr. William J. O'Neil (founder of IBD) found that quite often such stocks continue to make higher gains after attaining the explosive gains of over  +20%  within a short period of time.  Demand from the institutions is so great that the stock gets propelled higher from the sheer size of the demand from the institutions.  Institutions often curb their enthusiasm for the stock after attaining high price so quickly just so as not to exhibit their intentions of wanting to acquire more of the stock.  

Quite often stocks tend to gap up during the quarterly earnings report.  There is a rush from the institutions to capture as many shares as possible.  Their competing interest is reflected in the rise in the price of the stock.  During earnings season, every quarter I scan for stocks that increase in price in volume of shares traded 2 or more times than the average daily volume.  Institutions immediately within days hold back their interest after acquiring their initial position.  Retail traders often get excited and think that the stock will keep going higher and higher.  Other retail traders often get greedy and start chasing the stock only to find out that the stock begins to retrace down from the 8 day sma (simple average) to 21 day sma.  Patience is the key.  Make a list of such stocks that gap up and watch its performance over the next 8 weeks for a possible entry.

$QFIN

This stock has been appearing on IBD's one of the most powerful screens - IBD 50 Stock list - for the last couple of weeks.  It also has appeared regularly on the Sector Leaders Screen as well.  This  raises my rabbit ears for clues of institutional interest in the stock.  Here is a quick recap of how one could have taken advantage of the clues left by the institutions exhibiting an interest in accumulating this stock. 

• Feb 1st of 2021, stock broke out from 18.38 buy point in volume of shares traded 3 times the daily average volume.  Within 6 days, the stock rose more than  +20%  and within 2 weeks the stock attained gains of  +71.38%.  This triggered the  '8 week Hole Rule'.  Stock never looked back for the next 8 weeks 
• One of the IBD sell rules is to lock in some partial profits once the stock attains gains of  +20%  to  +25%.  Stocks quite often take some time to digest the massive gains attained in a short period of time.  It's good that the stock builds another base from which to propel higher.  This provides one an opportunity to profit in the stock if one missed getting in on Feb 1st.
• Earnings was on May 27th.  Stock once again broke out at 28.51 the day after the earnings release in trading volume that was 5 times the normal average trading volume.  Once again the institutions have expressed an interest in acquiring the stock and scaling up their position in the stock.
• May 28th the next day, stock could have been purchased at its early buy point of 28.51.  
• Friday June 4th, the stock broke out from its traditional buy point of 35.25 in volume that was 3 times the daily average trading volume.
• Within one week, the stock has attained gains of  +28.27%.  
• Stock is currently extended and trading at its 8 day ema (exponential moving average).  It's would be quite normal for it to retrace closer to the 21 day sma  to provide one an entry closer to the break out buy point.
• Stock is  +100%  since its breakout on Feb 1st (4 months).

 Subscription Service

We are putting our final touch to launch our Weekly Zoom Sessions.  If it all works out well than we hope to have it start by late summer.  August and September are our worst performing months.  It makes perfect sense to get trained to the finer points of trading and investing in Growth Stocks while the market is in doldrum for the summer.  I am looking forward to have you all:

1. Look over my shoulder every week as I go through the process of looking for stocks of interest.
2. Analyzing the stock charts to decipher the institutional behaviour.
3. How to Annotate stock charts on the brokerage platform for future reference.
4. Going through the Investors.com website to extract some fundamental and technical aspects of the stock.
5. Developing an appropriate Trade Plan for the stock.
6. How to position size when you take an initial stock position or add to the existing position.
7. Look over some of the conservative option setup to consider to either protect your stock or to increase the profitability for slight moves in the stock.

Class size will be limited to few students  to enhance the experience of active engagement with homework assignments.  Secure your spot now by letting me know if you are interested in being a subscriber.   Sessions will be recorded and archived  and will be available for as long as you are a subscriber.   

Send me an email at: 

investorspotlight@gmail.com 

if you would like to participate in this subscription service and start your profitable investing journey with my guidance and mentoring.

Happy Trading!

Amin Hemani