Frequently Asked Questions

Market Lab Report
Please discuss your selling strategy "Seven Week Rule" which captures gains in a stock without giving back too much profit

Use the 10-day and 50-day moving averages to capture gains in a stock without giving back too much profit. Our strategy is known as the “Seven-Week Rule.”


10-day = Stocks that have shown a tendency to “obey” or “respect” the 10-day moving average for at least 7 weeks in an uptrend should often be sold once the stock violates the 10-day line. The count typically starts on the day of the pivot (pocket pivot, buyable gap up, base breakout, etc).

 


50-day = If the stock doesn't show such a tendency to obey the 10-day moving average for at least 7 weeks, then it is better to use the 50-day moving average as your guide for selling.

 


This rule can help prevent you from selling a stock prematurely if it is simply not its nature to hold the 10-day moving average, but rather violates it within 7 weeks. Our studies of pocket pivots indicate that a pocket pivot buy point which results in an uptrend that is shown to obey the 10-day moving average for at least 7 weeks following the initial pocket pivot should be sold upon its first violation of the 10-day line. A “violation” is defined as a close below the 10-day moving average followed by a move on the next day below the intraday low of the first day.


Published: Jan 23 2012