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Why not to buy a Stock after a 3 day run-up..
Here is a usual scenario on how this may come about..
After a stock has been trending down or trading flat for some time, suddenly one day it starts moving up, it continues up that day and then next day. On the 3 day of this run, it goes up, but for only the first 15- 20 minutes, then it drops for about 30 minutes, turns back up, but doesn't quite reach the morning high. After this period, it usually will trend down and the run is over and in most cases this stock has finished it's 3 day run.
This program will work in most cases and does apply.
So, if you're a buyer, this method will keep you from getting Emotional into buying a stock that has ready peaked, only to drop right after you bought it and I'm sure, many of you had this happen when buying stocks. This is what is referred to as " Chasing An Issue".. If you already own it, it gives you the timing to get out with usually the best profit or close to it. Which ever case applies, decide whether you want to buy it only after the drop. Depending on the stock, it can drop for a few days, and may take some time until the next 3 day advance. Be assured, that in pennies, this has been repeated over and over again with many of the same issues.. This is what you have a "Watch list for" to track issues..
The rule here is simply to let you know it is over for now.
The next time someone mentions a stock, look at a chart and see how many days it has been going up. If it's not the first day or maybe second day of the run-up, stay away for the time being. In the first 15-20 minutes after the open of the 3rd day, the issue will usually drop or in most cases just stall...Now of course you must determine this by seeing if a PR and the strength of such PR warrant further advancement, but from the history of most penny stocks, these PRs only have a very short run span..
Although, the system is not perfect it does help in timing.
Sometimes a stock continues up until 20 minutes after the open of the 4th day before it drops. Selling your stock 15-20 minutes after the open of the 3rd day of the run-up is usually the high or close enough to it. You will go broke trying to find the exact top or chase into a run, forget about it and leave your emotions out of the trade. It is in this segment that Greed usually plays on your Emotions and Anxiety. Play the 3 P's.
And how does this help in buying?
Well, that is a little more difficult, but the system does work. It is mainly there to protect you from being a "Stock Chaser". But the system will work and you must apply discipline.
Go to any stock website and look up a few stocks that are up....Jot them down...I only do this with OTCBB market stocks, but does work on most issues.
Next, I take my stock picks and go to any chart site to look at a 5 day history. The 5 day gives you a nice feel of the trading chart of the last 5 days. Notice why the 5 days compared to the 3 days.. This is so you will see the up or down on the 2 extra days and can avoid the pick. Look to see if it is the first day of the run-up. If it is the second or third day on an up swing, forget about it, since the above method has completed their run on these stocks and you will be only buying into a run or when it is reading to peak.
If I have any choices left, then go to a chart to see a 1 year and a 30 day chart to get a feel of what the stock has been doing. Keep in mind that the past is no bearing on what a stock will do in the future, but it will give you an idea...This also helps in determining what if any reason for volume and price spikes or drops.. Some chart sites allows your cursor to move along the graph for pertinent data with actual numbers.
My last stop is always the message boards and my favorite was RB, but now I go to iHub and there are others. It is here where you can get a real good idea why there is interest or reason for lack of..I don't rely so much on what is said on message boards and ever react on my decision to buy or sell..However,these boards do give you a sense on what others are thinking and many will go above and beyond to gather up DD.
After you have made your picks on which ones to buy, I have found that mid-afternoon is always an excellent time because of lunch and the morning rush has calmed down. The mid-afternoon session is slow before a strong rally that many times comes before a close. I have found mid-mornings are also good for buying, but still leaves many with high expectations that moves a stock for no other reason than emotional buys and it is this play that you want to stay away from.
Now stay on top of your picks and see if the next day it has moved up and determine the volume.. Determine if the highs are higher than the close and higher than the highs of the previous day.
On the third day, I sell it 15 to 20 minutes after the open to take advantage of the morning gap. That's pretty much it.......If your inclined to trade the same issues again, wait for the next above program cycle.
Not all stocks go up for 3 days. Some just flatten out and when this happens, just get rid of it after about 15-20 min. from the open on the 3rd day. If you fail to exercise this you will be left with major % loss and may never recover.. So a little loss is much better than an overall wipe-out.
Stocks that suddenly go up and you see there has been almost no volume the days before the sudden rise, this is usually indicative of a sign that a newsletter picked the stock or it is being pumped or hyped. The lack of previous volume makes the stock spike up.
This 3 day rule is a universal application and to each it's own method of how one should conduct such a process.
Good luck and solid trading and as always, apply sound DD, but keep your Emotions and Anxiety out of this arena and trade for profit not greed.
I hope that this will help many to be able to at least maximize profit taking..
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