PARABOLIC STRATEGY
As far as I am concerned, a parabolic angle of ascent is the most profitable and the most dangerous. It all depends on when the buy point was effected.
If you have trouble forming a strategy, I suggest selling into the strength on a scaled basis as the stock goes parabolic. Understand that the gains are expected to be hundreds of % from the original buy point. If you buy into the parabolic move, it means that you are buying into the hype and are likely one of the “last players” in.
How do you identify a parabolic move? First, you use a weekly price chart going back at least 5 years. A daily chart does not give you enough data points to capture the macro move. If you do not have a charting package that can determine the degree of ascent, then use an old protractor (yes, you can still buy them) and overly it on top of the chart. You can even get an online protractor (just put protractor into Google and you shall find).
If the angle gets to 75-80 degrees from the base, be careful. It is time to form an exit strategy not an entry strategy. Sell percentages of your position at self-defined levels. 20% to begin with, then another 20% at higher levels, and so on. I would keep a portion of the position and use a stop-loss for the final lot. You will get less than your average price but it takes the emotion out of the decision-making. This sure worked in the 2000 bubble. I had a bio-tech stock at $10/share that eventually peaked at $140/share. I began to sell at $70,$90,$110,$130. I left a bit there until the chart broke at close to $80. The stock eventually went back to $20.
There are many charts that are parabolic now. A lot are in the commodity and energy sectors. A normal level of ascent does not worry me, it is the 75-80 degree or more level that should raise awareness of a strategy shift. At the least, if you do not own these stocks, these parabolic charts should indicate that it is likely too late to begin buying.
3 years ago • Notes