Profit-and-Loss Plan 1. Only buy a stock when it is above its daily 20ma. 2. Same rule in reverse for shorting a stock. 3. One of O'Neil's original rules in 1960 was to buy stocks about to make or making a new 52-week high after emerging from a sound correction and price consolidation period. The BO should be on a volume increase of at least 50% above moving average. a. Other 2 rules - concentrate on stocks above $20 with some institutional following, and EPS increases past 5 years and current quarterly EPS up at least 20%. 4. Later O'Neil discovered that a stock after its BO tended to run up 20-25%, then decline and build new bases, sometimes resuming their advance. a. New Rule: Buy exactly at Pivot point and have discipline not to pyramid or add to position more than 5% past Pivot. Then he'd sell when stock rose 20%. i. Exception: if stock vaulted up 20% in less than 8 weeks, he held stock full eight weeks. 2. Sell Signals a. Climax Runs stock suddenly advances at a much faster rate for one or two weeks after an advance of many months. Often, such runs end in exhaustion gaps when a stocks price opens up on a gap from the prior days close on heavy volume. Here are topping signals to watch for. i. Largest daily price run up. If price is extended for many months after BO off sound and proper base, and closes for the day with a larger price increase than on any previous up days since the beginning of the move this is a topping signal. ii. Heaviest daily volume Ultimate top might occur on the heaviest volume day since the beginning of the advance. iii. Exhaustion gap stock has been rapidly advancing for several months and then opens on a gap in price. iv. Climatic top rapid run-up for 203 weeks or 8-10 days where price spread is greater than on any prior week since beginning of up move. Watch for railroad tracks where stock retraces prior weeks large spread and then rises, closing up a little on high volume (indicating distribution). v. Signs of distribution after long advance, heavy volume without further upside price progress signals distribution. vi. Stock splits after 25-50% advance in a week or two. vii. Increase in consecutive down days. viii. Upper channel line stock hits upper channel line after a huge run-up. ix. 200-day moving average line stock 70-100% above 200ma. b. Low Volume and Other Weak Actions i. New highs on low volume. ii. For several days stock closes at/near days price low fully retracing days advances. iii. 3rd or 4th-stage bases. iv. Heavy selling near top and next recovery occurs on lower volume. c. Breaking Support stock closes the week below established major trend lines as well as other forms of price support.

i. Long-term uptrend line (3 points over 2-3 months) is broken sell if stock closes at end of week below major long-term uptrend or breaks a key price-support area on overwhelming volume. ii. Greatest one-day price drop after run-up. iii. Falling price/heavy weekly volume. iv. 200-day ma line turns down. v. Living below 10-week ma for many weeks without a rally. 3. Selling Short a. Two best chart patterns for short selling: i. Head and Shoulder Tops. ii. 3rd or 4th stage cup-with-handle or other patterns that fail on BO.

Money Management 1. Livermore - average up, i.e., after initial stock purchase, you purchase additional shares as stock moves up in price. a. Warranted after correct Pivot purchase - buy additional shares when it moves up 2-3%. O'Neil - do so buying smaller lots.