What is the 8 week rule in stocks?
If the stock happens to gain upwards of 20% in just 1 – 3 weeks of a proper breakout, then it must be held for eight weeks. Stocks that move with this sort of “power” often become the market's biggest winners, rising 100%, 200%, or more.
It's called the eight-week hold rule. If your stock produces a gain of 20% or more within three weeks of breaking out of a proper base, you may have a true winner on your hands. IBD research shows that in many cases, stocks that make this quick and powerful move are capable of doubling or tripling in price.
"The basic rule is that if a stock breaks out of a base (i.e. a narrow range) where it's been trading for a while and gains 20% in three weeks or less, you should hold for at least eight weeks," says Ian Rayner, founder of Rayner Gobran.
Retail investors can buy and sell stock on the same day—as long as they don't break FINRA's PDT rule, adopted to discourage excessive trading.
The 8% sell rule is a strategy used by some investors to minimize losses and help preserve their capital. The rule is typically applied when a stock drops 8% under your purchase price—regardless of the situation. Keep in mind that this isn't a hard-and-fast rule.
Though there is no ideal time for holding stock, you should stay invested for at least 1-1.5 years. If you see the stock price of your share booming, you will have the question of how long do you have to hold stock? Remember, if it is zooming today, what will be its price after ten years?
The most common time frames are: Scalping (1-minute to 15-minutes): This is a short-term trading strategy where traders aim to make small profits by entering and exiting positions quickly. Day Trading (1-hour to 4-hours): Day traders hold their positions for a day or less, closing them before the market closes.
For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
The law states that if an investor buys a security within 30 days before or after selling it, any losses made from that sale cannot be counted against reported income.
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.
Can I sell a stock and buy another immediately?
The general answer is yes. There is a settlement period for the sold stock, but it overlaps the settlement period for the purchased stock. After selling the stock, your account must have sufficient purchasing power to acquire the new stock.
You can buy the same stock back at any time, and this has no bearing on the sale you have made for profit. Rules only dictate that you pay taxes on any profit you make from assets. To profit in stocks, means that you make rich rewards.
The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
It doesn't hurt to repeat the Seven-Week Rule, which is that any stock that shows a tendency to hold above its 10-week moving average for intervals of at least seven weeks should always be sold when it violates the 10-day moving average.
The three-weeks-tight pattern forms when a stock closes within 1.5% of the prior week's close for two straight weeks. Volume will be quiet during this period as the stock consolidates after breaking out of its base. This signals institutional investors are comfortable with the stock's advance.
IBD's golden rule of investing is this: Cut your loss if the stock falls 7% below your purchase price. But can you do better than that? Can you find clues that the stock isn't acting right, then get out with a smaller loss?
If your stock gains more than 20% from the ideal buy point within three weeks of a proper breakout, hold it for at least eight weeks. (The week of the breakout counts as week 1.) If a stock has the power to jump more than 20% so quickly out of a proper chart pattern, it could have what it takes to become a huge winner.
Market Orders
When placing a market order, an investor agrees to sell their shares at the current market price per share. The sell order will be placed immediately or when the market reopens if the order is placed after hours. One upside of market orders is that the trade can usually be executed quickly.
Many traders and investors believe Friday is the best day to sell stocks. This belief comes from observations of the aforementioned Friday Effect, where stocks often enjoy a slight bump in prices as the trading week comes to a close.
Understanding the rule
Your account will be flagged for pattern day trading if you make 4 or more day trades within 5 trading days, and the number of day trades represents more than 6% of your total trades in that same 5 trading day period. This rule only applies to margin accounts and IRA limited margin accounts.
When should I exit my trade?
The safest strategy is to exit after a failed breakout or breakdown, taking the profit or loss, and re-entering if the price exceeds the high of the breakout or low of the breakdown. The re-entry makes sense because the recovery indicates that the failure has been overcome and that the underlying trend can resume.
If you are risk-averse and your primary concern is capital preservation and long-term profits, a buy and hold strategy is probably your best choice. If you are okay with more risk and volatility and are willing to put in the time every day to manage your investments, an active trading strategy could work.
Rule of 69 is a general rule to estimate the time that is required to make the investment to be doubled, keeping the interest rate as a continuous compounding interest rate, i.e., the interest rate is compounding every moment.
The 8-4-3 rule implies that your money should double roughly every 8 years if invested at an average annual return of 8%. By applying this rule, your money doubles every 8 years, quadruples in 16 years, and multiplies by 8 in 24 years due to compounding.
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