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Rudolf Lee
5 years ago
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The comments expressed here are based upon study and interpretation of available data as it relates to our historical models of the best-performing stocks.

1 The comments expressed here are based upon study and interpretation of available data as it relates to our historical models of the best-performing stocks. This is not a prospectus; no effort on our part with respect to sale or purchase of any securities is intended or implied. Any chart appearing in this material is for educational purposes and is not, and should not be construed as a recommendation or rating to buy or sell any security. It is possible that at this date or some subsequent date, the officers, directors and/or shareholders of Investor s Business Daily, Inc. or their affiliates own securities or buy or sell securities listed in the following pages, or those not mentioned. Investor s Business Daily, IBD, CAN SLIM and corresponding logos are registered trademarks owned by Investor s Business Daily, Inc. 1

2 3 More Things to Know About Selling Take Most Profits at 20% - 25% Your Profit-and-Loss Plan One Important Exception: 8-Week Hold Rule How to Spot Sell Signals Early Where to Learn More About Selling Selling: Parts 1 & 2 This month: Sell rules to nail down your gains Last month: Sell rules to cut your losses short 2

3 If you don t sell early, you ll sell late. Don t get greedy. Get disciplined! To lock in solid gains, sell while your stock is still going UP. Your object is to make and take significant gains and not get excited, optimistic, greedy, or emotionally carried away as your stock s advance gets stronger. - William J. O Neil, IBD Founder and Chairman 3

4 Plan to sell before you buy. Do you hesitate when it s time to sell? Be Ready to Act! Set specific target prices to lock in your gains and cut any losses. Write It Down! When you buy a stock, write down your target sell prices (for profit-taking and loss-cutting). Keeps you ready to act at the right time. 4

When you buy a stock: 1. Print daily & weekly chart. 2. Write down target sell prices. EXAMPLE Date: 9/22/2006 Market Outlook: Confirmed uptrend Purchase Price: $34.

5 When you buy a stock: 1. Print daily & weekly chart. 2. Write down target sell prices. EXAMPLE Date: 9/22/2006 Market Outlook: Confirmed uptrend Purchase Price: $34.39 # of shares: % Profit-Taking Target: $ % Sell Rule Price: $31.64 Improve Your Gains with Post-Analysis Print charts for every buy and sell, and note your reasons. Makes it easy to review your trades, and improve your skills. 5

6 Don t let a decent gain become a loss. Why let your profits slip away? If your stock rises close to 20%, don t let it drop into a loss. You can always buy it back if the stock rebounds and offers another proper buy point. Better Late Than Never Even if you held a stock too long, selling to save a smaller gain is better than taking a loss. 6

7 Take most profits at 20% - 25%. Why? Most stocks correct (decline) after going up 20% - 25% from a proper buy point. Why watch your profits shrink or disappear? Sell to turn your paper profits into real cash. Small Gains Compound to Create Big Profits You don t always need 50% - 100%+ profits on a single stock. Easier to grow your portfolio by taking 20% - 25% gains on several stocks. 7

8 Take most profits at 20% - 25%. Calculate % Gain from Ideal Buy Point l The 20% - 25% gain is calculated from the ideal buy point, which may be different from your actual purchase price. EXAMPLE j Ideal Buy Point = $ k k Your Purchase Price = $ j l Target 20% Gain = $ $ (Ideal Buy Point) + 20% Your actual profit = 18% Cup-with-Handle 8

9 Your Profit-and-Loss Plan Take most profits at 20% Cut all losses at no more than 7% - 8% Provides Profits and Protection You can be wrong on 2 of 3 stocks and still have a small gain. Your profits will compound quickly as your batting average improves. Sell Sooner in Weak Market For example: Take profits at 10% - 15% and cut losses at 3% - 4% when overall market is weak. 9

10 Simulation Taking Gains at 20% January April

11 Lockheed Martin (LMT) 2006 Weekly Chart Purchase Date: 1/4/2006 Market Outlook: Confirmed uptrend Purchase Price: $ % Profit-Taking Target: $ % Sell Rule Price: $59.25 Sell: 3/21/06 Up 20% Buy: 1/4/06 Cup-with-Handle Instead of sitting through this 3-month correction, you locked in a 20% gain. Calculate % Gain from Ideal Buy Point Remember: Calculate 20% target gain from ideal buy point which may be different from your purchase price. 11

12 Goldman Sachs (GS) 2006 Weekly Chart Purchase Date: 1/26/2006 Market Outlook: Confirmed uptrend Purchase Price: $ % Profit-Taking Target: $ % Sell Rule Price: $ Sell: 4/5/06 20% Gain Buy: 1/26/06 Cup-with-Handle Remember: Many leading stocks correct after rising 20% - 25%. Why not lock in your gains? 12

13 Starbucks (SBUX) 2006 Weekly Chart Purchase Date: 1/27/2006 Market Outlook: Confirmed uptrend Purchase Price: $32.64 Ideal Buy Point: $ % Profit-Taking Target: $ % Sell Rule Price: $29.44 Even if your purchase price is different from ideal buy point, use ideal buy point to calculate 20% profit-taking target. Sell: 4/3/06 20% Gain Buy: 1/27/06 Cup-with-Handle What if you held the stock? You d have a loss instead of a good gain. Buying Range: Best to buy as close to ideal buy point as possible, but stock is in buying range up to 5% above proper buy point. 13

14 Chico s FAS (CHS) 2006 Weekly Chart Purchase Date: 2/14/2006 Market Outlook: Uptrend under pressure Purchase Price: $ % Profit-Taking Target: $ % Sell Rule Price: $42.69 Buy: 2/14/06 Cup-without-Handle Sell: 3/2/06 Sell before 8% loss on gap down in heavy volume. Watch the Overall Market Riskier to buy when uptrend is under pressure. (See Lesson 1) What if you held? One big loss can wipe out your gains in other stocks. Cut ALL losses short! 14

15 One important exception to taking profits at 20% - 25%: 8-Week Hold Rule If your stock gains 20%+ within 1, 2 or 3 weeks of a proper breakout, hold it for at least 8 weeks from its buy point. Stocks with power could become bigthat winners. Thissuch rule applies to leading stocks Just broke out rule of a firstsecond-stage basenormal volatility This helpsoryou hold through does to late-stage bases. sothis yourule don t sellnot a apply possible big winner too soon. Have institutional sponsorship owned by Ideal a few Buy top-performing 8-Week Count (i.e., Starts from Point funds) Are in athe leading groupbuy and have fundamentals (earnings weekindustry of the ideal point is outstanding Week 1 of the 8-week count. and sales growth, return on equity, etc.) 15

16 AOL (Now Time Warner - TWX) 1999 Weekly Chart 8 Weeks from Buy Point: $52.50 (+73% from breakout) AFTER 8 weeks, sell or hold? After 8 weeks from the buy point, you can choose to take your profits or hold. You may want to hold if: Overall market is still strong, and Hold for 8 Weeks Up 20%+ in 3 weeks $30.29 Cup-with-Handle Stock has traits of a potential big winner (e.g., big earnings & sales growth; new, innovative product/service; owned by topperforming funds; solid ROE; etc.) 427% Gain in less than 6 months from breakout 8-week rule helps you identify and hold on to potential big winners. *Split-adjusted share prices 16

17 Chicago Mercantile Exchange (CME) 2005 Weekly Chart Hold for 8 Weeks Up 20%+ within 3 weeks Buy: Double-Bottom 8 Weeks from Buy Point: Up 37% 8-week rule gives you cushion to hold through pullback and capture bigger gains. 17

18 How to Spot Sell Signals Early Weak Overall Market Climax Top Late-Stage Base Weak Chart Action: New Highs On Low Volume Living Under 10-Week Moving Average Line 18

19 Weak Overall Market Don t Fight the Market 3 of 4 stocks follow general market, up or down. Be cautious and ready to lock in your profits in market downtrend. How can you check current market strength? Check Market Pulse in The Big Picture. More on Changes in Market Direction Review Lessons 1 & 2 on How to Spot Market Tops & Bottoms See Education tab on Investors.com 19

20 Climax Tops Sudden 1 2 week advance by leading stock at much faster rate after a big run over several months. Largest one-day run-up Charles Schwab (SCHW) 1999 DAILY Chart Exhaustion gap +60% in 8 days Time to get greedy or Up get7 out? consecutive days What to Look For 25% - 50% gain in 3 weeks or less Exhaustion Gap Elements Exhaustion gap Stock must be advancing rapidly and greatly extended beyond 1st stage base Up for 7 of 8 or 8 of 10 days in a row Largest one-day run-up since initial breakout Heaviest daily volume since beginning of run-up Usually occurs at least 18 weeks past 1st or Fell 46% months 2nd stage breakout (at leastin 12next weeks2 from later-stage bases) If stock then opens on gap up in price from prior day s close, the advance is near its peak. Break above upper channel line (See slide 24) Heaviest daily volume 20 20

21 Climax Tops Also check WEEKLY chart. Charles Schwab (SCHW) 1999 WEEKLY Chart Widest weekly price spread Prior run-up over several months Cup-with-handle 21 21

22 Climax Tops Hansen Natural (HANS) 2006 Daily Chart Largest one-day run-up What climax top elements +44% in 4 days can you see? Why hold when it has all the signs of a climax top? Exhaustion gap Big run-up over several months Tried to rally, but fell 45%+ in less than 3 months 22

23 Climax Tops Hansen Natural (HANS) 2006 WEEKLY Chart Also check WEEKLY chart. Widest weekly price spread Prior run-up over several months 23 23

24 Climax Tops Break Above Upper Channel Line Amazon (AMZN) WEEKLY Chart Sell Sign: Breaks above line Upper Channel Line Indicates stock is extended above its long-term price trend Buy Point 24

25 Climax Tops How to Properly Draw Upper Channel Line Amazon (AMZN) WEEKLY Chart Draw line on weekly logarithmic chart Line must cover price run-up lasting at least 18 weeks from proper breakout Connect 3 or more points on chart 25 25

26 Climax Tops How to Properly Draw Upper Channel Line Point 1: Start with a weekly high that occurs near the breakout Can be same week as breakout 26 Amazon (AMZN) WEEKLY Chart Point 1 Breakout 26

27 Climax Tops How to Properly Draw Upper Channel Line Amazon (AMZN) WEEKLY Chart Point 2 Point 2: Connect another weekly high Point 1 Must be at least 10 weeks past Point 1 Be sure to follow the minimum time required between points! Meets 10-week minimum time between Points 1 & 2 If you use less time between points, the channel line will be inaccurate. As a result, the stock may look like it broke above its upper channel line and cause you to sell to soon

28 Climax Tops How to Properly Draw Upper Channel Line Amazon (AMZN) WEEKLY Chart Point 3 Point 2 Point 3: Connect another weekly high Point 1 Must be at least 8 weeks past Point 2 Meets 8-week minimum time between Points 2 &

29 Climax Tops How to Properly Draw Upper Channel Line Amazon (AMZN) WEEKLY Chart Point 3 Hold: Stock does not break channel line Point 2 Draw a line connecting all 3 points 29 Point 1 29

30 Climax Tops How to Properly Draw Upper Channel Line Sell: Breaks above line Amazon (AMZN) WEEKLY Chart Point 3 Point 2 Point

31 Late-Stage Bases Nothing goes up forever. Breakouts from 3rd or 4th stage bases more likely to fail Best to sell when your stock makes new high off 3rd or 4th stage base Free Online Course: Counting Bases See Online Courses under Education tab on Investors.com. 31

32 Late-Stage Bases By now, everyone knows about the stock. Deckers Outdoor (DECK) Weekly Chart Are there enough new buyers to push the price higher? Best to sell when stock hits new high off 3rd or 4th stage base (3) Cup with Handle (2) FlatSell BaseToo Early, Not Too Late! gains by selling while Market Lock goes in into correction in November. Market Correction + Late-Stage Base = Sell Signal (1) Cup with Handle your stock is still moving UP. If you re still holding shares, how does that affect how you handle this stock? 32

33 Late-Stage Bases Weekly Chart Re-setting Base Count Count is reset when stock undercuts low in prior base. Prior base This becomes new 1st stage base. New base count begins. Undercuts low of prior base Investor s Business Daily. All rights reserved. 33

34 Weak Chart Action: New Highs On Low Volume Apple (AAPL) 2008 Weekly Chart Fading Support After long run-up, new high on low volume shows lack of support for higher stock price. Time to sell and lock in your gains? Early Warning Sign Saved the Day! 10-week moving average line 34 34

35 Weak Chart Action: New Highs On Low Volume Apple (AAPL) 2008 Weekly Chart Your Stocks vs. General Market Apple dropped at same time overall market went into correction. Don t fight the market! Weak Chart Action + Weak Market = Sell Signal Investor s Investor sbusiness BusinessDaily. Daily.All Allrights rightsreserved. reserved. 2011

36 Weak Chart Action: Living Under 10-Week Line BMC Software (BMC) 2007 Weekly Chart Drops below 10-week line on huge volume Good run with support at 10-week line Support Support Support Lives line Trendsunder down 10-week for another for 10 weeks 16straight weeks 10-Week Moving Average Line Could holdyour ifinvestors the money stock be can t Key benchmark used by Why institutional findfor big put to9 better support use? Living below 10-week line 8 investor or more weeks to it higher? can indicate weakening support forpush the stock. 36

37 Lesson 6 Key Points Plan to sell before you buy. Write down your target sell prices and stick to them. Follow your Profit-and-Loss Plan. Take most profits at 20% - 25%. Cut all losses at no more than 7% - 8%. Look at price & volume charts to spot early warning signs. 37

Where to Learn More About Selling NEW! How to Make Money in Stocks Complete Investing System Includes How to Make Money in Stocks, Action Plan DVD, one month eibd subscription.

38 Where to Learn More About Selling NEW! How to Make Money in Stocks Complete Investing System Includes How to Make Money in Stocks, Action Plan DVD, one month eibd subscription. Plus, a free Level I seminar in city of your choice. 2 full chapters on selling: - Ch. 10: When You Must Sell and Cut Every Loss Without Exception - Ch. 11: When to Sell and Take Your Worthwhile Profits Free Online Courses: Sell Signals and Buying and Selling Checklists (See Education tab on Investors.com.) Investor s Corner: Daily investing lessons. (See Education tab on Investors.com) IBD Workshops: Beginning to advanced workshops on chart-reading, buy & sell rules, portfolio management and more. (See See the best time to buy & sell stocks using charts with the Market Wrap and Daily Stock Analysis videos. See IBD TV tab on Investors.com 38

39 Coming Next Month Lesson 7: Components of Winning Stocks Accelerating Earnings & Sales Growth You ll learn: awhy growth in earnings-per-share (EPS) is the single most important factor in choosing a stock awhat long- and short-term earnings & sales % growth a stock should have before you buy ahow to use IBD to find stocks that have explosive earnings and sales growth right now and more! Stay in Touch! Get the latest updates from IBD on Twitter and Facebook!

40 The comments expressed here are based upon study and interpretation of available data as it relates to our historical models of the best-performing stocks. This is not a prospectus; no effort on our part with respect to sale or purchase of any securities is intended or implied. Any chart appearing in this material is for educational purposes and is not, and should not be construed as a recommendation or rating to buy or sell any security. It is possible that at this date or some subsequent date, the officers, directors and/or shareholders of Investor s Business Daily, Inc. or their affiliates own securities or buy or sell securities listed in the following pages, or those not mentioned. Investor s Business Daily, IBD, CAN SLIM and corresponding logos are registered trademarks owned by Investor s Business Daily, Inc. 40

2010 Investor s Business Daily. All rights reserved.

2010 Investor s Business Daily. All rights reserved. The comments expressed here are based upon study and interpretation of available data as it relates to our historical models of the best-performing stocks. This is not a prospectus; no effort on our part