How many times have you seen your stock go up 20% or 25%, and then come right back to where it started from? Too often
It's not your imagination. That 20%-to-25% advance zone is a real stumbling block for many stocks. Even without showing any sell signals while the stock rises, you'll often see it stall in that neighborhood.
Big funds apparently have learned that lesson, and they'll often put some shares out at that level, just to protect themselves from a humiliating round trip.
Should you care where the big guys sell your stock? Of course you should. After all, that sort of supply could slow any stock.
And remember, your stock almost surely went up in the first place on the strength of these funds. Always play with the funds, not against them.
That's the first good reason to take at least partial profits on your winning stock at that point.
But you're thinking, "If the stock is rising nicely without any sell signals, why should I just assume there'll be trouble at the 20%-25% gain? It might go even higher.
Yes, it might. But even if it does, chances are it will at least slow down.
Meanwhile, the market is hot and there are most likely plenty of other stocks setting up or staging fresh breakouts.
Do you want to see if the older stock can tack on a few more percentage points to the upside? Or do you want to ride on a fresh for possibly faster gains
Remember, too, all those 7% and 8% losses you've taken in your search for the big winners. That's a facet of investing that can't be avoided. But a few 20% or 25% gains will offset those dings. Cash management is as important to investing as stock picking.
Now, before you toss this newspaper (or surf to another web page), be alert to the big and crucial exception to this 20%-25% profit-taking strategy. And that's the eight-week-hold rule.
If your stock surges at least 20% within three weeks of breakout out from a base or rebounding from its 50-day moving average, hold on for a total of eight weeks. Such a fast move in so short a time span is evidence of powerful forces scrambling for your stock.
The rule is not sacrosanct. Serious sell signals should be taken seriously. A sudden broad-market correction could squelch a hot stock.