Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market

5.11. SELLING TECHNIQUES USING THE 10-DAY AND 50-DAY MOVING AVERAGES

Alert readers may have noticed that the sell rules for pocket pivot points are the exact same rules that are used for gap-ups. This is because these sell rules are all based on the Seven-Week Rule that we use for determining whether to use the 10-day or 50-day moving average as our guide for selling a stock, and this can be applied to any stock at any stage of its price trend. While the 20-day is used to some degree as well, we tend to focus more on the 10-day and 50-day moving averages as our primary guides for selling stocks and/or cutting back positions.

It doesn't hurt to repeat the Seven-Week Rule, which is that any stock that shows a tendency to hold above its 10-week moving average for intervals of at least seven weeks should always be sold when it violates the 10-day moving average. Conversely, stocks that do not show this tendency should be sold when they violate their 50-day moving average.

Sohu.com (SOHU) held its 10-day moving average for just about 21/2 months in 2003 (Figure 5.47) as it nearly tripled in price from late March 2003 to mid-June before finally violating its 10-day moving average, at which point it should have been sold based on the Seven-Week Rule. Since SOHU held its 10-day moving average for more than seven weeks after it broke out in March of 2003, the 10-day moving average was your selling guide on that upside move. Once the stock broke the 10-day moving average, you would have ...