Do you agree with this IBD rule? "Practically speaking, the market is in a clear downtrend. In that climate, it's vital that you heed IBD's cardinal rule of investing: Always sell a stock when it falls 7% or 8% from your buy point. No excuses. We can never be certain how far the market will fall. When leading stocks started faltering in early 2000, the market was coming off a decade of gigantic gains. But the correction worsened, evolving into one of the worst bear markets in history. Many investors who failed to cut losses watched their stocks dive 50% or more, wiping out their portfolios. -- Investors Business Daily 11/20/07"
Unless you are sticking to a system where a greater draw down is expected, that's not bad advice (for example, if you plan to buy and hold for the next 50 yrs. 10% drawdowns will be inevitable). The key is sticking to your predetermined stop. And many backtests have shown that wider stops are generally better for systems (the 2.5-3.0 ATR advice isn't very good over the long run IMO). That being said, IBD has the worst TA books I can recall reading. They are 100% subjective in their explanations, and they like to back cherry pick the 1 in a 1,000 winners that worked. You see this every time they post an ad, "if you bought cisco on IBD's advice 10 yrs ago, you would have been up 10,000%!!!!"
if you buy the right stocks you can take a 15% loss without problem. With small cap and midcap such a rule generally is a good idea because those stocks are more prone to reversing and not rebounding.
I think the IBD rule is - a stock should not fall 8% below its pivot point (buy point), hence the 8% sell rule. Good luck finding the pivot point.
Exactly. Buy at the right price, the 8% rule is perfecto. WJO knows what he is talking about. If you cant find the pivot point, whos fault is that?
If you buy the leading stocks that have huge growth, stong buying momentum and are large cap you will do fine. No need to look for pivot points and other work.
Yes and no. My casual recollection is that stocks purchased at the beginning of a bull phase infrequently trigger a 7 % stop loss order. There do not seem to be many sellers around at the beginning of a bull phase. It is later in the bull phase or near the top of the market when price breakouts fail. That is the time when the 7 % stop loss rule is valuable. I prefer to trade using smaller positions and wider stops.
Bear market has not arrived yet. It has not happened yet. The SPX, RUT and most notably NDX are still holding on to support levels. NDX is doing great with many stocks above 50 day moving averages. Now if you want to spread fear go ahead and sell 7 - 8 percent targets. You will incur losses only to look foolish when the market comes back up. Go head sell everything next trading day.
Yes. I keep thinking of Microsoft stock. If I bought Microsoft stock any time any price about year 1983 or 1984 and just held on, let the business grow, follow the major trend, ignore the tremors and hysteria then by year 2000 the position might be worth a ton of money. There are lots of other examples. Cisco, Oracle, Apple, Intel, Exxon, Merck, and Wal-Mart all show large stock price increases over many years. I might use a 350 day moving average as a guide to keep me invested for most of the price increase and signal an exit if business conditions degrade.