Page 1142 - How to Make Money in Stocks Trilogy

Selling Checklist 127

Also keep this in mind: Since you’ve already owned the stock once, you
know its story, and if you’re using charts, you know its trading “personality.”
That makes it easier to handle the stock properly and spot any changes in
trend.
It also makes it easier to capture a sizable chunk of a big winner’s gains—
without the stress of having to sit through major sell-offs that may happen
along the way.
When a stock like Apple, Priceline.com or Green Mountain Coffee
Roasters goes up 1,000% or more, you probably won’t capture that whole
gain. But by following the 20%–25% rule—and continuing to track a winner
even after you sell—you can certainly grab multiple 20%+ profits in that
stock. And the “Rule of 72” shows how a few of those gains can very quickly
increase the size of your portfolio.

Don’t Forget the General Market!
Stocks don’t operate in a vacuum. Like the moon’s effect on the tides, the
direction of the general market has an enormous pull on individual stocks.
You’ll often find that stocks hit that 20%–25% target, then pull back to
form new bases at the same time the overall market uptrend is starting to
run out of steam.
See the connection?
Winning stocks make their climbs when the overall market is trending
higher, and they’ll start to pull back when the market weakens. That’s why
it’s important to be on the lookout for any changes in market direction by
regularly checking the Market Pulse in The Big Picture column.
We’ll get into the role of the general market more when we talk about
“defensive selling,” but for now, just make a mental note of how closely the
20%–25% sell rule is tied to the ebb and flow of the overall market.

Important Exception to the 20%–25% Sell Rule
If a stock rises over 20% within just 3 weeks from a proper buy
point, hold the stock for at least 8 weeks.
Stocks that show that kind of power have the potential to go on to even
bigger gains. It’s an indication that institutional investors are aggressively
establishing new positions or increasing existing ones, and that’s what fuels
a big, sustained climb.