Obeying Rules Could've Added +9.03% Gains
Lessons Learnt Trading $PLTR
Follow The Rules:
Growth Stock investing utilizing IBD(Investors Business Daily) methodology is a "Rule Based" system of investing. Following their prescribed rules of:
- Buy Rules
- Sell Rules
- Market Rules
helps you to mitigate losses and helps preserve your portfolio capital. It also helps you lock in profits at appropriate levels and increase the size of your portfolio. United Airlines flight 328 on Feb 20th had an engine blow out soon after take off but the pilot remained calm and followed the rules of emergency landing. The plane was headed to Honolulu from Denver. That's a long flight over the Pacific Ocean and it carried a lot of fuel. Following the rules helped mitigate the risk. Same is true with any profession. Physicians follow the rules of diagnosing and treating the patients appropriately following the prescribed protocols. Investing and trading growth stocks is a profession and rules have to be observed.
$PLTR stock position was initiated on Jan 15th after the stock was trading tightly and methodically for 5 weeks. 4 more positions were scaled in as the stock began making quick +20% gain within days in volume that was 2 to 4 times the daily average trading volume. By Jan 27th (8 days into the trade), 1/2 of the total position was closed out to lock in +39.10% gains. Since the stock surged more than +20% within days, it invoked the "8 Week Hold Rule". It will be held until mid March and evaluated again. Following the rules of IBD helped lock in the profits.
I have rules about holding onto the stock during the earnings report. As a general rule, I trim my holdings to 1/2 or more prior to earnings report release if the stock has not advanced +20% with my initial position. This time I violated my rule and held the 1/2 position that was left over plus the 2 additional small position initiated just days before the earnings release. Stock dropped -12.75% the next day after the earnings were released after market close the day before.
Ouch ! Ouch ! Ouch!
That was very painful. Stock dropped even further the following day and it sliced down the 50 day sma(Simple Moving Average). My personal rule is to draw a line in the sand at 34 day ema(Exponential Moving Average) for all my positions to give me a heads up to mitigate losses. I ignored that rule too this time. My average cost of the remaining position was $29.80 carried through the earnings announcement. Feb 17th, the position was closed off at $28.58 for a loss of -4.13%. Had I closed off the position the day prior to earnings release, stock would have been +4.93%. Had I stuck to my rules, my portfolio for this stock would be +9.06 beyond the +39.10% gained for the 1/2 position that was closed off earlier.
Plan For $PLTR This Week
On Friday, the stock was trading at $29.00. It surged +14.75% with average trading volume that is 6 times the normal. It traded almost as many shares as the day of it's IPO. You know it's the institutions (I include the Robinhood traders that band togather going after a stock). 320 million shares changing hands on Friday is a sign of institutional interest in the stock again. Other stocks in this group are $DT, $APPS, $DOCU and $RNG that are all trading above the 10 day sma. On Monday I will determine if there is a follow thru increased volume and the price with $PLTR. I have set my target of entry between $29.75 - $32.65 for now.
I am attaching a 6 minute video of Mr William J O'Neil explaining some of the basic rules of Buying and selling Growth Stocks. It was a good reminder for me to listen to his rules and obey them.
https://youtu.be/IhsrJap6Oj0
Happy Trading!
Amin