I need some feedback on using the 50% rule.
Could some of you tell me if I am thinking correctly and correct me for areas in which my thinking is of base?
These are my thoughts:
Is it appropriate to apply the 50% rule on the same day as the run?
OR, do I wait until the next day and look at that day's close? If it does not close at the 50% mark or better, then is this the indication that it ia heading lower rather than higher?
Also, if the stock starts out the next day moving above the 50% mark and trades around that range, but breaks the to the downside at some point, is that an indication to sell the few remaining shares I have intraday?
This 50% rule is great, but it takes so much more to learning how to apply it than looking at a chart and seeing if it gives up 50% of its move.
Are these thoughts wrong?:
1) You use the ENTIRE range of the day of the move, even a 2 minute spike, AND you include the amount of a gap from the previous day's close.
2) You start out at the close of the day on the day PRIOR to the move, not the open of the day of the move. This would keep gaps in perspective as a part of the total move, whereas, if you use the open of the day on a gapper, you lose the part that the gap contributed.
3) You are looking at if the stock gives back 50% or more in SUBSEQUENT days after the move, not THE day OF THE MOVE.
4) If it gives back more than 50% intraday in subsequent days, you either sell it (when it drops below the 10dMA), or consider adding to the position (when it holds the 5dMA).
5) However, If it CLOSES below the 50% level, you want to be out of the stock.
6) These things can happen over the next day, 3 days or even 15 days. You continually keep your eye on the 50% mark of the last major move, and the 5d and 10d MAs, and sell or add accordingly, until the next major move up, or it drops too far, or closes below 50% of that move.
Now, have I figured out all of this correctly, or have I missed something?
OR, am I making it too complicated?
"5 and 10 day MAs and 50% rule", and "if it gives up more than 50% of the move, sell, or add to your position", comments make it sound SO simple. My brain needs more explanation, sorry.
Someone, please confirm or clarify.
