The sweet spot for swing traders | stockbee

9/12/2014

The sweet spot for swing traders



As a young stockbroker trying to figure out the market in the 1950s to early 1960s, Bill O'Neil made an important observation.
He noticed that stocks tend to rise from a proper base, advance 20% to 25%, then correct, often forming a new base. So O'Neil came up with an important component of his plan for stock market success: Sell most of your stocks once they rise 20% to 25%.
O'Neil, founder and chairman of IBD, also noticed that if a stock made a big advance right out of the gate, it had the best chance of being a big winner. So he came up with another rule. If a stock advances at least 20% in the first two or three weeks after breaking out of a base, hold it at least eight weeks, then decide whether to hold it for the long term, hoping for a big gain. 
Smart Investors Lock In Profits At 20% To 25%

This is the crux of IBD methodology . It is a swing trading method to find 20 % kind of moves on momentum stocks. Occasionally it finds big movers.

In reality many of those 20% kind of movers do not make the 20% move even if you bought them at proper IBD buy points. You would end up with 8 to 12% moves.

It is not IBD that is focusing on 20% kind moves. Bulk of the active traders effort are focused on finding that kind of moves , because most traders who have studied the market found same thing.

That is the sweet spot in stock moves.

If you accept that then life becomes easy. You do not spend lot of time dreaming about finding big winners. They are there but they are rare. Focusing on 20% move is relatively easy game.

The next question is if the objective is to find 20% move , then are there other ways to do it. After all what Bill O'Neil is not gospel truth, unless you are mindless rabid fan of it.

Think how you can find 20% moves in different easier ways...

Methods and philosophy

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