Re: [CANSLIM] AAII letter to the editor

From: Hong Hsu <honghsu@bellatlantic.net>
Subject: Re: [CANSLIM] AAII letter to the editor
Date: Sun, 13 Jul 2003 23:37:59 -0400

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   Katherine,

    Appreciate to share your thought.
   -Hong


Katherine Malm wrote:

>Hi Hong,
>
>The 7-8% rule was originally designed based on an entry at a breakout above
>the pivot on high volume from a valid intermediate term base. That base can
>be either cup with handle, flat, double bottom, etc. The reasoning behind
>the rule was based on WON's research where he observed that, on average, a
>strong breakout will fall no more than 8% below its pivot before continuing
>the move up. As with all things CANSLIM, remember that this is based on
>*average* behavior of stocks after a breakout. That means that some fall
>more, some fall less before moving ahead. For a beginner to CANSLIm and/or
>technical analysis it's probably good enough to keep a newbie out of
>trouble. As one becomes more familiar with technical analysis and has
>several years of experience under their belt, understanding the behavior of
>the stock itself will help set more meaningful stops.
>
>I disagree that one should automatically set an 8% stop loss when entering
>on a pullback and my understanding of reading WON and the IBD's writings on
>this are that the 8% does not necessarily apply with this type of entry. A
>pullback entry is one in which one waits for a stock to pull back to near
>term support, but there is not necessarily a lengthy consolidation at that
>particular support. If the stock falls on high volume below that support,
>there's trouble in River City. 8% may be *way* too loose a stop. Afterall,
>one can still lose their shirt 8% at a time.
>
>Katherine
>
>
>-----Original Message-----
>From: owner-canslim@lists.xmission.com
>[mailto:owner-canslim@lists.xmission.com]On Behalf Of Hong Hsu
>Sent: Sunday, July 13, 2003 9:13 PM
>To: canslim@lists.xmission.com
>Subject: Re: [CANSLIM] AAII letter to the editor
>
>
>Katherine,
>
>I agree all of your opinions with one exception.  That is,  always cut
>your loss at 7% or 8% from your entry price.    I can not find evidence
>to support that logically from Mr. O'Neil's book or from my experience.
>
>It seems to me that if a stock fails from its first breakout,  then the
>rule holds TRUE.  But after first breakout, the stock may build its
>second flat base, or continue went up for a while.  You may buy at pull
>back, support line or on the top of second flat base.  In these cases,
>if you stick with 7% or 8% loss rule, most likely you will be forced out
>because of volatile.   In a message I post two days ago,  I was trying
>to find a solution to the issue.  But got no response.
>
>I am thinking to use price progress and time to determine stop,
>something like Parabolic System from  http://www.tradertalk.com/,   OR
>simply use %, but instead measure from entry point, you measure it from
>first pivot OR Fibonacci retreat line.
>
>Your comments will be appreciated,
>-Hong
>
>
>
>
>
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