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American Capital Agency Corp. Message Board

  • luaprelsie luaprelsie Mar 4, 2013 1:18 PM Flag

    Please can someone post the 3% rule, often indicated in discussion. TIA

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    • For Gniognat and others who are asking. Here is a copy and paste from my previous thread on GLAD:

      "Setting the trade:

      I look for a higher high and a higher low from the previous day and choose to enter the trade on the close of the day following these met criteria with the following caveats:

      A) The days high, low and approaching close must be within 2% of the previous day's high, low, and close. IOW, if yesterday's high was 9.25 and today's high was 9.50(2.7% higher) then the trade is aborted. Just the high and the low have to be higher than the previous day, but all three(high, low, and close) must be within the 2.5% window.

      B) Deep breath...the difference between the high and the approaching close of the day, divided by the difference between the high and the low of the day must be greater than 20%. IOW, we don't want to enter a Long position on the high of the day. If you have today's high at 9.30 with today's low @ 8.95 , with today's close approaching 9.00. Then take (9.30-9.00)/(9.30-8.95)= .85 which is greater than 20% so the trade is on, for this criterion.

      C) Exit all positions at X-1"

      That is the GLAD Criterion.

      2) The 3% Rule states that you will enter a limit buy order after the close of the day which is 3% lower than the closing PPS up until X-1, in order to purchase additional shares after X+3.

      These are criterion I have seen work well with five stocks I currently am trading:

      PSEC, ARR, FSC, CFP and FSC, all monthly dividend payers.

      Best,

      DocReits

      • 4 Replies to reits_r_us
      • Doc, I am sure it is clear to most, but I am a little confused (which is an improvement over my normal state).
        1. The first question is on the 3% rule. The 3% rule is as follows:
        “The 3% Rule states that you will enter a limit buy order after the close of the day which is 3% lower than the closing PPS up until X-1, in order to purchase additional shares after X+3.”

        Does this mean that after making a buy on a given date that you immediately place a limit order to buy at a price that is 3% less than the date of the close of the buy? If so, do you continue to buy after that using the 3% less than the close on the date of the original buy, or must it drop an additional 3% to buy later?
        To illustrate, the close on the date of a buy is $30. I immediately place a limit buy order at $29.10, which is 3% less than the close on the date of the buy. I am filled two days later and the close on that date is $29.20. Do I place a buy limit again at $29.10 or at 3% less than $29.20?

        2. Second question. In the first sentence under A), you use 2%, but later at the end you use 2.5%. Should both numbers be 2.5% or am I missing something?

        My apologies for being picky, but I am a retired bean counter and these things give me pause.

        Steve

      • Hi Doc,

        What's the 5th stock? FSC is listed twice.

      • yourbestfriendintheworld yourbestfriendintheworld Mar 5, 2013 10:47 AM Flag

        1. lots of redundancy. just say "if the day's low is above the previous close, the day's high is within 2% of the previous close, and the day's close is aiming for the lower 4/5ths of the day's range, then it's a buy at the close"

        2. you never define "X", or its units, so "X-1" and "X+3" could be anything and any distance apart.

        3. it's not clear why you had to post the A-B-C paragraphs when posting the "3% Rule" paragraph.

        4. if all of this means what i think it means (buy shares until the day before x-div, then dump and buy after x-div), then you may be getting post hoc ergo propter hoc'ed. pretty much anyone can make money on a cyclic stock, no matter what dance they do before pushing the button.

      • You mentioned five stocks that work with the "3% Rule"; does it work for AGNC, also?

    • It looks like zero percent know about a three percent rule.

 
AGNC
23.17-0.02(-0.09%)Nov 21 4:00 PMEST

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