The 8 Week Hold Rule
What is the 8-week hold rule?
The 8-week hold rule was first developed at Investor’s Business Daily (IBD). As William O’Neil explains in his best-selling book “How to Make Money in Stocks” initial profit-taking on CANSLIM-style stocks should begin in the 23-25% range.
However, there is one exception:
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. The reason is that stocks can only move this way when institutional demand for the stock is so great that the stock is unlikely to succumb to near-term selling pressure.
For example, in October 2013, Trinity Industries, Inc. (TRN) broke out of a 3-weeks tight pattern at $14.84. In the 4 th week, it reached our 25% threshold, triggering the 8-week hold rule.
Interestingly, in week 5 there was a sell-off that likely scared many investors out. This will often happen during an 8-week period. But oftentimes, you can sit through this and the stock will rise to much higher prices.
By October of 2014, just one year later, TRN had risen more than 110%, and ultimately, you would have been taken out for a profit at about $30 for roughly 100% when TRN finally violated several major moving support levels.
8-Week Hold Rule Criteria
There are some important criteria that must also be in place for you to adequately apply the 8-week hold rule:
- The stock should be breaking out of a 1st or 2nd stage base
- Later-stage bases are riskier
- Later-stage bases are riskier
- Strong market-leading fundamentals
- Top-rated stock within its group
- The group itself should be performing well relative to other groups
- Excellent earnings, sales, and ROE (as mentioned above)
- Good institutional sponsorship
- Owned by top-performing funds
- A rise in the number of funds owning shares
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