U.S. Markets open in 5 hrs 46 mins

Hold Rule For A Fast Riser Keeps You In A Great Stock

Some people who have only a cursory understanding of IBD's investing approach will argue that it's a short-term trading strategy.

That's wrong on two levels. First, IBD isn't about imposing a strategy on the market; it's about letting the market impose its reality on you.

Second, the ideal of IBD investing isn't short-term. The ideal is to latch onto a truly big winner and stay with it as long as possible.

There will be many stocks that initially appear to meet the ideal standard for greatness but ultimately either disappoint or become a one-time profit.

However, when a stock does prove its greatness, it's important that the investor stay in it.

IBD chairman and founder William J. O'Neil has written about Pic 'N' Save, a company that later changed its name to Mac Frugal's Bargains and was bought by Big Lots (BIG) in 1998.

O'Neil held Pic 'N' Save for seven and a half years. "All told, we bought Pic 'N' Save on 285 different days... Our early purchases showed more than a 10-fold gain," O'Neil wrote in ".

The tough part is identifying which stocks will turn into long-term winners.

There's a rule that can help you identify and stay in such stocks. It's the eight-week hold rule.

If a stock with elite fundamentals breaks out of a base and rises 20% in the first two or three weeks, that stock should be held for eight weeks and then re-evaluated.

Often, the big winners begin with such a move.

Pic 'N' Save completed a cup-with-handle base in August 1979. The stock cleared the 13.35 1 in mid-August and advanced almost 22% in less than three weeks. 2 This triggered the eight-week-hold rule.

After eight weeks, the stock was back at the 10-week line but still comfortably above the entry. The stock established a low at 14 over the next two weeks. This proved to be the toughest time to hold.

Had anyone panicked and sold, they could've bought the stock back in mid-November when it retook its 10-week line in strong trade. 3 In the next four years, Pic 'N' Save rose tenfold. It peaked in mid-1986, marking a twentyfold gain from August 1979.