RE: [CANSLIM] stop losses and profits

From: "Duke Miller" <dukemill@tampabay.rr.com>
Subject: RE: [CANSLIM] stop losses and profits
Date: Tue, 20 Aug 2002 18:37:22 -0400
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Katherine:

Good points here, and not a lot unlike my own discipline.  "Once 8-week
mark passes, new sell rules kick in," prompts me to ask what everyone
else is thinking.  As in, "What sell rules kick in?"

Here's where I'm coming from:  What if we all take a little time here to
bone up on our sell rules? Throw some concepts out on the table
(everyone does have a list, don't they?) and get ready for the day when
we may need them again (if it ever comes!).

Just a thought.

Duke

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com] On Behalf Of Katherine Malm
Sent: Tuesday, August 20, 2002 3:42 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] stop losses and profits


HI Mike,

I know I talked a bit in circles on this topic and it may have been
because I didn't read your question/response closely enough.

Here's the summary of my thinking on this issue:

I separate my sell rules into several distinct time periods, and the
rules vary a bit depending on what the stock does within a certain
amount of time. All of this also assumes a healthy "M", of course:

1. Time period: 1st 2 wks after breakout: If the stock rises, regardless
of the percentage, then falls back on low volume, the 8% rule still
holds. I do not add to a position unless the stock falls back near the
pivot on *low
volume.* I am skeptical and keep a sharp eye if it drops below the
pivot, but it's not uncommon for this to happen, especially in iffy
markets, and especially in the first week. That's what the 8% rule is
there for, it gives you some leeway, but there are times where it goes
up quickly and then falls back and you're stuck with the 8% loss. When
the volume picks up to the downside, I'll move the stop to breakeven. If
the volume is severe, I'll be out before it hits that point.

2. Once the stock passes the 2 wk mark and up to the 8th week: I've
moved my stop to breakeven. That way, I don't have to take a loss in a
stock that's risen and stayed above its pivot.

3. Once the 8 wk mark passes, new sell rules kick in.

On something like NCEN, in particular, you were fighting against tide to
begin with, so there was already extra risk in your purchase. The market
was in a clear downtrend and had shown no signs of follow-thru. Second
warning was the churning it put in on 6/27, 6/28. Lots of volume and
very little price progress--yellow flag. That makes 2 because the poor
market is a yellow flag to begin with. Next warning: a big tail down on
7/1, though the volume was relatively benign and didn't qualify as a
"distribution" day. Last warning to head for the exits: 7/2. A big
volume day and big tail down. That's 4 yellow flags in a row. Time to
exit if you haven't already done so. If it wasn't clear on 7/2, it was
screaming for attention on 7/5--an up day on very low volume. Assuming
you'd missed all the signals, then you still would be saved by a
breakeven stop if you'd entered on the breakout 6/19.

All in all, the 8% stop is useful, but far less important than all the
other sell rules after a stock breaks out.

Katherine


- ----- Original Message -----
From: <michael_niemotka@baxter.com>
To: <canslim@lists.xmission.com>
Sent: Tuesday, August 20, 2002 2:19 PM
Subject: Re: [CANSLIM] stop losses and profits


|
| Katherine,
|
| I actually followed this thinking and watched a nice profit (15%) in 
| NCEN turn into an 8% loss as the bottom dropped out.  I think it has 
| made me make a modification to stop at break even if I end up at 15% 
| gain, at
least
| until M has be proven to be turned.  I came up with this based on 
| assuming a stock that breaks out would "normally" be expected to rise 
| about 25-30% before re-basing, so if never gets up by that amount from

| my buy point, then I should exit sooner rather than later...
|
|
| Mike Niemotka , PE
| Sr. Principal Engineer
| Baxter Healthcare Corporation
| Route 120 & Wilson Road
| Round Lake, IL 60073
| Tel (847) 270-4075
| Fax (847) 270-4525
| michael_niemotka@baxter.com
|
|
|
|                     "Katherine Malm"
|                     <kmalm@earthlink.net>         To:
canslim@lists.xmission.com
|                     Sent by:                      cc:
|                     owner-canslim@lists.xm        Subject:     Re:
[CANSLIM] stop losses and profits
|                     ission.com
|
|
|                     08/16/2002 05:01 PM
|                     Please respond to
|                     canslim
|
|
|
|
|
|
| Oops...I realize now I misread your question.
|
| I would *hold on* up to 8% below buy price, but if the stock comes 
| back
and
| *kisses* the pivot, then I would buy more. I'm not inclined to buy 
| more when the stock drops *below* the pivot, unless it shows strong 
| volume pushing it back up to the pivot and beyond. Now I think I've 
| confused even myself!
|
| This is the way I think of it  "Kiss the pivot, second chance to buy 
| more---Hit the pivot, yellow flag"
|
| Katherine
|
| ----- Original Message -----
| From: "Katherine Malm" <kmalm@earthlink.net>
| To: <canslim@lists.xmission.com>
| Sent: Friday, August 16, 2002 4:55 PM
| Subject: Re: [CANSLIM] stop losses and profits
|
| | Hi Mike,
| |
| | 8% standard stop loss, though I don't see this happen too often when

| | the market is healthy.
| |
| | Katherine
| |
| | ----- Original Message -----
| | From: <michael_niemotka@baxter.com>
| | To: <canslim@lists.xmission.com>
| | Sent: Friday, August 16, 2002 2:54 PM
| | Subject: Re: [CANSLIM] stop losses and profits
| |
| |
| | |
| | | Katherine,
| | |
| | | I knew I could count on you for a good answer.  As a follow up to 
| | | your answer #4, if you made 10-15% in one week, how low would you 
| | | allow the stock to drop on low volume and still buy more, as 
| | | opposed to selling
| out?
| | |
| | | Put another way, if it ran up 15% in a week, would you allow it to

| | | go
| | below
| | | your original buy point, even if it was at low volume?
| | |
| | |
| | | Have a great weekend everyone!
| | |
| | | Mike
| | |
| | | Mike Niemotka , PE
| | | Sr. Principal Engineer
| | | Baxter Healthcare Corporation
| | | Route 120 & Wilson Road
| | | Round Lake, IL 60073
| | | Tel (847) 270-4075
| | | Fax (847) 270-4525
| | | michael_niemotka@baxter.com
| | |
| | |
| | |
| | |                     "Katherine Malm"
| | |                     <kmalm@earthlink.net>         To:
| | canslim@lists.xmission.com
| | |                     Sent by:                      cc:
| | |                     owner-canslim@lists.xm        Subject:     Re:
| | [CANSLIM] stop losses and profits
| | |                     ission.com
| | |
| | |
| | |                     08/16/2002 02:31 PM
| | |                     Please respond to
| | |                     canslim
| | |
| | |
| | |
| | |
| | |
| | |
| | | Hi Nancy,
| | |
| | | Let me try and clear up some of your confusion:
| | |
| | | 1. A stock's "rise" does not occur *in* a base, but *between* 
| | | bases.
| While
| | | the price will fluctuate up and down within the base itself, the
amount
| of
| | | fluctuation will vary depending on the severity of correction and 
| | | the
| time
| | | it takes to form the area of consolidation. The stock is 
| | | essentially
| | | *absorbing* the gains of its previous advance.
| | |
| | | 2. When you purchase a stock, you will always purchase it as it
*breaks
| | | out*
| | | of that base. This preferred buy point is referred to as the 
| | | "pivot"
| and
| | is
| | | again defined by the pattern that the base forms.
| | |
| | | 4. When a stock begins a healthy rising pattern after it breaks 
| | | out,
it
| | can
| | | rise *any* amount before it consolidates (bases) again. There is 
| | | no
| hard
| | | and
| | | fast rule as to how much it will rise before basing, though WON
| suggests
| | | that if it is >=25%, the next base would then be considered a "new
| stage
| | | base." This is only important in that his studies show that most
stocks
| | | can't muster the oomph to keep going after they've reached the 3rd

| | | or
| 4th
| | | stage base.
| | |
| | | 3. Mike's question about a sell rule is not dependent on *which* 
| | | base
| in
| | | the
| | | base count we are evaluating. A base is a base. If the stock 
| | | breaks
out
| as
| | | it should and begins to rise, how are you going to handle selling 
| | | it when/if the time comes?
| | |
| | | 4. WON suggests that, if you buy correctly at the pivot (or no 
| | | more
| than
| | 5%
| | | above it), that you should never have to suffer a loss of more 
| | | than
8%.
| | | This
| | | is because, in his studies, he has found that a healthy stock 
| | | never
| falls
| | | more than 8% below the pivot before continuing a healthy advance.
| | |
| | | 5. Mike's question, specifically, was "if a stock breaks out of a
base,
| | | then
| | | rises 10-15%, then falls back, where do you place your sell stop? 
| | | 8%
| below
| | | your buy price or something other than that?" In other words, 
| | | should
| you
| | be
| | | willing to accept *any* loss if a stock has managed to rise 10-15%

| | | in
6
| | | wks,
| | | then falls back to where you bought it. My vote is, if it takes 6 
| | | wks
| to
| | | rise and then erases the entire advance, I don't want to take an 
| | | 8%
| loss.
| | | If
| | | it rose 10-15% in *one* week and then fell back on low volume, I'd
look
| at
| | | that as "normal" and might consider it a second chance to *buy* 
| | | more.
| | |
| | | Katherine
| | |
| | |
| | | ----- Original Message -----
| | | From: "NANCY POLCARO" <zillagirl@msn.com>
| | | To: <canslim@lists.xmission.com>
| | | Sent: Friday, August 16, 2002 1:47 PM
| | | Subject: Re: [CANSLIM] stop losses and profits
| | |
| | |
| | | | Katherine-let me see if I am following correctly please.  My
question
| is
| | | | that previously I understood that after the third rise in a base
| | | formation
| | | a
| | | | stock may correct by dropping below the previous base and then
| starting
| | | up
| | | | again if all is well with the stock.  Then the bases start to be
| | | recounted
| | | | again.  In this case, if you just bought in during the third 
| | | | rise in
| the
| | | | base, which from my understanding would probably go up between
| 15%(Mikes
| | | | figure) and 25%( the amount of each rise in a base of a healthy
| stock)
| | | you
| | | | would sell(not you personally but someone with my amount of
| experience
| | or
| | | | the like) before the 8% drop, to protect your gain.  Then follow

| | | | the
| | | stock
| | | | and watch for a buy in again at some point depending on how the
stock
| | | acts
| | | | from this point on?  Is that close to correct ???  Thanks for 
| | | | your
| | | thoughts
| | | | Nancy
| | | |
| | | |
| | | | >From: "Katherine Malm" <kmalm@earthlink.net>
| | | | >Reply-To: canslim@lists.xmission.com
| | | | >To: <canslim@lists.xmission.com>
| | | | >Subject: Re: [CANSLIM] stop losses and profits
| | | | >Date: Fri, 16 Aug 2002 13:09:30 -0500
| | | | >
| | | | >HI Mike,
| | | | >
| | | | >I think you'll get a hundred different answers on this one, so 
| | | | >I'll
| | just
| | | | >answer from my personal point of view.
| | | | >
| | | | >If a stock breaks out of a well-formed base on volume, then 
| | | | >takes 6
| | | weeks
| | | | >to
| | | | >rise 10 or 15 percent, then I sure wouldn't want to risk 8% 
| | | | >loss at
| | that
| | | | >point, even if it were falling back "normally" as you suggest. 
| | | | >To
me
| | | that
| | | | >means that no sell signals were triggered on the way up, and 
| | | | >that
| the
| | | | >general pattern included up days on higher volume than down 
| | | | >days,
| | | support
| | | | >at
| | | | >the 50 day moving average, etc. My personal preference, 
| | | | >however,
| would
| | | be
| | | | >to
| | | | >move my stop to breakeven or slightly below (3-4% max, 
| | | | >depending on
| | | market
| | | | >conditions) if the stock had risen like this.
| | | | >
| | | | >Katherine
| | | | >
| | | | >
| | | | >----- Original Message -----
| | | | >From: <michael_niemotka@baxter.com>
| | | | >To: <canslim@lists.xmission.com>
| | | | >Sent: Friday, August 16, 2002 9:17 AM
| | | | >Subject: [CANSLIM] stop losses and profits
| | | | >
| | | | >
| | | | >| Group,
| | | | >|
| | | | >| In reading WON, he makes a statement that you should never 
| | | | >| let a
| | stock
| | | in
| | | | >| which you are up 10-15% turn into a loss, but I was wondering

| | | | >| you
| | have
| | | | >| interpreted that along with the sell at no more than an 8% 
| | | | >| loss
| rule.
| | | | >|
| | | | >| Say you buy a stock, at a breakout, and it rises 10-15% over 
| | | | >| a
few
| | (6+
| | | | >| weeks), and then is started to correct....Do you sell at you
break
| | | even
| | | | >| point, or do you allow it to go to your 8% loss point before
| selling?
| | | | >This
| | | | >| is assuming that the stock is NOT giving any strong sell 
| | | | >| signals,
| but
| | | | >| appears to be pulling back "normally".
| | | | >|
| | | | >| Thanks
| | | | >|
| | | | >| Mike Niemotka , PE
| | | | >| Sr. Principal Engineer
| | | | >| Baxter Healthcare Corporation
| | | | >| Route 120 & Wilson Road
| | | | >| Round Lake, IL 60073
| | | | >| Tel (847) 270-4075
| | | | >| Fax (847) 270-4525
| | | | >| michael_niemotka@baxter.com
| | | | >|
| | | | >|
| | | | >|
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