Trading Rules & Guidelines

  • Having a clear-cut set of trading rules and the discipline to follow them is a must. Just because a stock mentioned in the 11 Charts Report goes through a pivot point or a trend line, that does not mean it should be bought with impunity. Volume is often the most important factor here, although there are many other important factors that should also be considered. For example, the state of the general market, the health and breadth of leading growth stocks, or an individual stock’s personality to name a few.
  • Entry Area, Entry Area, Entry Area – Having the discipline to “buy right,” makes all the difference.
  • Earnings – Always know when a stock reports its quarterly earnings. In general, a profit cushion of about 5% is sufficient to hold a stock through earnings. However, if you are dealing with a stock that has swung around 10- 15% or more, in reaction to prior earnings releases or any other binary event, it should be taken strongly into consideration. In cases where profits are borderline, but your entry point is “optimal,” we recommend selling at least a part of that position (1/3 to 1/2) and then holding the balance through the report.
  • Trading the Open – In general, we do not trade within 25-30 minutes of the open, in order to let prices stabilize.
  • Pre and Post-Market Hours – We almost never trade outside regular market hours. (9:30 am EST – 4:00 pm EST)

Basic Selling Rules

  • If a stock drops 8% under your buy point, sell it with no ifs, ands or buts. Otherwise, not all sell stops should necessarily be treated like a line in the sand, depending on the situation. However, not all sell stops are created equally. Sometimes a stock will shakeout slightly below a sell stop, to eliminate the weak holders and then turn right back around, especially when it’s an obvious stop that “everyone” is watching like a stock’s 50-DMA. In such instances, we try to give a stock some room to wiggle below a moving average (some stocks get more leeway than other depending on the situation.) Also, we always try to wait until right before the close to ultimately make decisions on sell stops.
  • In many cases, it makes sense to cut losses much shorter than 7-8%. However, this tactic can work against you as well. William O’neil (WON) did not arbitrarily come up with a max stop loss of 7-8%. After a detailed study of the market’s biggest winning stocks, over every market cycle since the 1880’s, he figured out that if the market is in a confirmed uptrend and a stock which meets the CAN SLIM criteria is breaking out of a sound base on heavy volume, it should not fall more than 7-8% below the pivot point, the majority of the time. Therefore, making the decision to cut losses early (e.g. 2-4%), can easily work against you in such scenarios.
  • Once a stock reaches the 20% profit level, consider selling at least half if not all of that position to lock in the gains. On average, a stock moves about 20% from a breakout, before it begins to form a new base. So in most cases, taking profits (at least partial profits) at about 20% and moving on is ideal. Keep in mind, it is much easier to find five breakouts that go up 20%, than it is to find one stock to go up 100%. The exception here would be a stock with outstanding fundamentals, that shows extreme power and rises 20% or more in three weeks or less. A stock, that shows such tremendous power straight out of the gate, should be held for 8-weeks and then reevaluated. This exception comes with a caveat though, which is the general market environment. For example, if the general market is choppy and breakouts are struggling, be very careful following this rule. We would reserve it for when leadership is robust, breakouts are working and the market is clearly trending higher.

Report Tips and Terminology

  • What we mean by a “big volume move” is volume that is 30 – 40% or more, above average. However, we often make exceptions for pocket pivot volume signatures, even if they are below average.
  • Like entry areas, sell stops are not necessarily definitive line in the sand. In the same way that we give a stock only so much leeway past its actual pivot point that it can be purchased. Many times a stock may need a little wiggle room below a sell stop, depending on the situation. For example, in a scenario where we are using the 50-DMA as a sell stop, we take into account the fact that it may need some wiggle room below. In most cases, stocks don’t stop exactly at their 50-DMA. Sometimes a stock is so strong that it may never get there, while other stocks are so choppy that they have little respect for any of their moving averages.
  • A stock’s personality should always be taken into account when you are “planning a trade.”