When a Stock Breaks $80 to the Upside, It Often Finds its Way to $100

This is a theory that I heard a while back and it has stuck with me. I wish I had the skill set to backtest this theory. I don’t know if I happen to notice this more because I’m aware of the theory or because it actually holds true more often than not. (You know when you think: “most BMW’s are black, you start to notice more black BMW’s”)

The most recent stock that seems to be experiencing this phenomenon is Shopify (SHOP). Look at that chart…Amazing! Maybe dangerous territory at this point as it has gone parabolic. But SHOP has to be one of the best performing stocks of 2017 so far.

Shopify isn’t profitable yet, but the growth rate is really strong. Shopify is an e-commerce platform that makes it super-easy to set-up and e-commerce shop. Rumor is they are a takeover target.

Another recent one is Dycom (DY). I totally missed this boat. I’ve been watching this stock for a while and I believe in the story of this company. They help build out networks for the giants. It’s probably not too late to invest here. I think this is a good company to average into.

As a trading strategy, the 80-to-100 strategy could offer a good risk/reward ratio. You want to buy on a close over $80. Let’s say you put a stop-loss at 8%, which is $6.40. Therefore, your stop-loss is $73.60. Your target is $100. That’s a 3:1 ratio. For this strategy to be profitable, it only needs to be right 33% of the time.

Again, I haven’t backtested this, but it could be interesting to and see if it worked. You could also apply other rules such as trailing the stop to $80 once it hits $88 or so (10% trail).

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