RE: [CANSLIM] stop losses and profits

From: "Dempsey, Chris" <Chris.Dempsey@ReedHycalog.com>
Subject: RE: [CANSLIM] stop losses and profits
Date: Tue, 17 Jun 2003 08:20:13 -0500

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Excellent post Katherine!

- -----Original Message-----
From: Katherine Malm [mailto:kmalm@earthlink.net]
Sent: Tuesday, June 17, 2003 8:02 AM
To: canslim@lists.xmission.com
Subject: RE: [CANSLIM] stop losses and profits

Hi Mike,

I had to stretch my brain cells to remember back to this discussion from
last year!

Refining and redefining my sell rules has been a number one priority for =
me
since early 2000, so you'll probably understand why I've modified these
since last year. Part of what makes sell rules more complex is that the
market will influence how breakouts behave, and therefore how much
"tolerance" one would give a stock after the breakout. Last August, when
this note was written, we were deep into the Bear. Very few stocks were
breaking out and for those that were, the action was always very =
tentative.
This "low tolerance" point of view was part of the responsiveness to =
market
conditions.

Now, I've developed a more sophisticated means of monitoring breakouts =
in
addition to the general market health warnings that we can see from =
simply
looking at the price/volume chart of the index averages, so the sell =
rules
can be specific, but still adaptable to strong vs weak markets.

From a market perspective, the initial tolerance is affecting by asking =
if
this is a "strong" or "weak" market:
(1) Is the market in a confirmed rally?
(2) Are the number of breakouts increasing?
(3) What percentage of the breakouts are up >=3D20% within the first 3 =
weeks
after their breakout?

For the stock itself, the intial tolerance is affected by asking if this =
was
a "strong" or "weak" breakout:
(1) Was the breakout on strong volume?
(2) If the breakout was on strong volume, did it close above or slightly
below the pivot?
(3) Did the breakout follow through (i.e., show the ability to continue =
to
move up, however small, after the breakout)?
(4) Was the volume on the breakout week higher than the previous week?

In simple terms you can then have 4 combinations:
(1) Strong Market, Strong BO (highest tolerance)
(2) Strong Market, Weak BO (midrange tolerance)
(3) Weak Market, Strong BO (midrange tolerance)
(4) Weak Market, Weak BO  (lowest tolerance)

The initial sell stop is set either at 8-10% below purchase (high
tolerance), 4-5% below purchase (midrange tolerance) or at breakeven =
(low
tolerance). You'll notice I'm more tolerant on the initial stop loss =
than
WON, as some stocks exhibit a particular volatility pattern that would =
force
you out unnecessarily.

I also do not use hard stops unless I'm out of town and can't review my
holdings. I use end of day prices to determine these points. Often, when =
a
stock has a wide-bar range, it kicks in a sell stop unneccesarily. If =
the
stock is weakening, hitting the stop intraday, but doesn't close below =
the
stop, I will watch action on the next day and determine whether the =
stock is
bouncing back on volume (showing strength) or wandering up on low volume
(showing continued weakness).

Regardless of market strength, after one of the following, the initial =
stop
is moved to breakeven:
(1) For high liquidity stocks (>=3D100K shares), did it rise >=3D20% =
after the
BO?
(2) For low liquidity stocks (<100K shares), did it rise >=3D15% after =
BO?
(3) Has 3 weeks passed since the BO?

Katherine

- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of
michael_niemotka@baxter.com
Sent: Monday, June 16, 2003 11:25 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] stop losses and profits

Katherine,

A while back you shared the below sell rules with me, and I was =
wondering
if you could provide a clarification on item #2.  After a stock has been
held 2 weeks, you stated that you move your stop loss to break even, and =
I
was wondering if that was independent of the action of the stock. In
particular, if you buy a stock that breaks out, and in the first couple =
of
weeks moves down a little ( -1 to -3% from pivot), but then moves back =
up
into a + terrritory, do you still move to break even, or do you keep the
7-8% stop loss in place, and if so, for how long?

Thanks

Mike

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