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 4th 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 1stor 2ndstage 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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Frequently Asked Questions
The 8-week hold rule, developed by Investor's Business Daily (IBD), states that if a stock gains upwards of 20% within 1-3 weeks of a proper breakout, it should be held for eight weeks, as such stocks often become the market's biggest winners.
The 8-week hold rule was developed by Investor's Business Daily (IBD) and is explained in William O'Neil's best-selling book “How to Make Money in Stocks.”
The 8-week hold rule helps investors identify and hold onto stocks with the potential to become market leaders, resulting in substantial gains.
Some essential criteria for the 8-week hold rule include the stock breaking out of a 1st or 2nd stage base, strong market-leading fundamentals, being a top-rated stock within its industry group, excellent earnings, sales, and ROE, and good institutional sponsorship.
Later-stage bases are riskier, and the 8-week hold rule is best applied to stocks breaking out of a 1st or 2nd stage base for optimal results.
The industry group's performance is an essential factor, as the 8-week hold rule should be applied to stocks within well-performing groups relative to other industry groups.
Institutional sponsorship is crucial because stocks with strong institutional support are more likely to maintain their upward momentum during the 8-week hold period.
Yes, the 8-week hold rule can be combined with other investing strategies such as CANSLIM or other technical and fundamental analysis techniques to optimize investment returns.
After the 8-week hold period, investors should monitor the stock's performance, looking for signs of weakness, such as a violation of major moving support levels or a significant deterioration in the stock's fundamentals.
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