About 40% of stocks pull back close to their buy point for one or two days. This is not the time to panic and sell, especially if the stock was purchased as it came out of a sound basing area at the right buy point. (For more on this, check the chart-reading lesson of the stock buying course) As long as the price doesn't drop 8% below the point at which you bought, you should, in most cases, hang on through the first pullback.

Watch how the stock performs relative to the general market and its industry group peers. Often, a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back. This is normal. On the other hand, if the market has been rallying over several days and your stock hasn't come to life, then this might be a warning sign, even if the stock hasn't dropped 8% below your purchase price.

Another thing to ponder: Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatile, increasing the chance of slipping 8%, particularly if you buy them extended in price beyond the exact buy point.

Related Resources:

Review IBD's 20 Rules For Stock Market Success.

Go to the Investor's Corner Archives to read IBD's "editor picks" of classic Investor's Corner columns.

Search our archive of Ask Bill O'Neil Q & A's organized by topic.