An update on my how to use the ibd 200 project. If you recall I first uncovered OpenTable, Inc (OPEN) and bought it in my stock simulator a couple of days ago. In case you are interested, I used the simulator over at investopedia.com. I've tried a few stock market simulators and I've like it the best so far. Although I think it could be better it will work.
I picked up 22 shares of OPEN at $44.95. It closed today at $45.05. In looking at the stock chart, it closed lower today on lower volume so it doesn't appear to be running into any major selling. It's above it's 50 day and 200 day moving averages. So far so good.
The key now is to look at where we should put a stop in. A stop is the sell price I set as my threshold if it goes down in price to my stop, I will sell the stock and move on.
The first way to look at a stop is with the CANSLIM rules. They say to sell every stock that falls 8% from your purchase price. My purchase price was $44.95. This stop would be $41.35. The low so far has been $44.12 so we've been ok there.
On the upside, my goal is to make 20-25% on this trade. This would put a target price of $53.94 for a 20% gain. My hope is that it goes up to that price.
On the down side, Stockbee recommends a volatility based stop. This is what he had to say:
There are two elements to my stops and exit strategy. Time stop and risk stop.
The starting stop I use is at 2 days low and also a time stop, which means if the stock does not move beyond the high of breakout price in 5 days I get out, even if it has not hit risk stop. After five days I trail with 5% stop and move stops strategicaly if there is second high volume breakout day, then again I will put stop below two days low and time stops. Once position acheves 20% profit I trail with a 10% stop but protect 20% profit. So the stop will be at 20% profit but once stock crosses 30% level I trail with 10% stop.
I might also liquidate my position if I see the overall market weakening. Especially in late rally stage ( where market has rallied more than 6-8 months) or if the 50% plus in a month indicator moves beyond 20. Position might also get liquidated , if I find a new Episodic Pivot based idea, which I believe has better prospect.
There is also a overall portfolio stop. That is the amount of total portfolio at risk. So if that gets hit all positions get liquidated.
There are two elements to my stops and exit strategy. Time stop and risk stop.The starting stop I use is at 2 days low and also a time stop, which means if the stock does not move beyond the high of breakout price in 5 days I get out, even if it has not hit risk stop. After five days I trail with 5% stop and move stops strategicaly if there is second high volume breakout day, then again I will put stop below two days low and time stops. Once position acheves 20% profit I trail with a 10% stop but protect 20% profit. So the stop will be at 20% profit but once stock crosses 30% level I trail with 10% stop. I might also liquidate my position if I see the overall market weakening. Especially in late rally stage ( where market has rallied more than 6-8 months) or if the 50% plus in a month indicator moves beyond 20. Position might also get liquidated , if I find a new Episodic Pivot based idea, which I believe has better prospect. There is also a overall portfolio stop. That is the amount of total portfolio at risk. So if that gets hit all positions get liquidated.
So the first criteria he uses is a 2 day low volatility stop. In our case, this would be $43.50.
I've been making all of my decisions at the end of the trading day. I'll keep an eye on the following numbers:
8% stop - $41.35
2 day low - $43.50
He also says that if the stock doesn't move above the high break out point in 5 days he sells. The high breakout point I've concluded is the highest close on the day it passed my screen.
High breakout point - $45.17.
I'm not sure this is correct but the stock cleared this price on the day that I got in, so we may be ok there. We'll wait and see.
OK. That's it for the status of OPEN and our little stock market investing project.
EmoticonEmoticon