In your newsletter you state buy points if the stock trades at or above a certain level. Usually these are the "safer" entry points. My first question is, once a stock trades at the buy point, how far should you let it run before it's no longer a wise choice to buy it? Say for instance, the buy point for AMCC is 208, and it hits that and keeps going. Would it be wise to still buy or let it go? My second is, if you were to buy AMCC at 208.5, then it drops back below 208 should you still hold or bail out? Should you hold as long as it doesn't drop by more than 7 or 8%? (October 21, 2000)
When a stock hits a buy point and volume is right or looks right, that is the time to act. Now you have seen in Team Trades where we try to get the best trade, say if we missed the initial breakout move and it comes back to test the breakout intraday. That is fine tuning the trade. Basically, when we see the move we want, we get in. We use a 'buy stop' so it is automatic (if it hits our price and does not gap over it) or just jump in and buy as we did Friday. If we miss a breakout, we don't chase it past 5% in most cases. As noted, it often comes back anyway intraday even if it does not come back to test the break in the next session or two. You don't want to get the breakout too extended and then have the stock fall back to the breakout and you are stopped out by applying the 7% to 8% stop loss rule on new purchases just to see the stock find support 8% below the buy point.
The 7% to 8% stop loss on new purchases is just that: when we buy on the move over our target, we set that loss price and as long as the stock stays over it, we hold on unless circumstances change and we no longer like the play. All things being equal, we hold on and give the stock time to make the move we are looking for. We have to give the stock room and time to work.
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