|Hansen Natural (HANS) makes natural sodas and energy drinks. Since the beginning of 2003, the stock has gained more than 17,900% (Figure 1). But that is not to say it didn't have any downward moves. Like other big winners, the chart shows times when the stock dropped by a large amount.|
|FIGURE 1: HANS, MONTHLY. The stochastics indicator shows that this long-term winner spent most of the time overbought, and many traders would miss the gains waiting for a traditional entry signal.|
|Graphic provided by: Trade Navigator.|
|If you look at the monthly chart of HANS in Figure 1, you will see that in 2006, the stock fell by more than 50% after gaining nearly 10,000% in only three years. Even long-term, dedicated buy and hold investors would be tempted to sell after seeing such a large gain and experiencing such a steep decline. This loss occurred in a generally rising stock market, making it even harder to argue that the stock would continue delivering big gains to investors.|
|In the 2008 bear market, the loss in HANS totaled 70%. From the March 2009 bottom, HANS is up about 375%. The stochastic indicator in the subchart below the price chart did indicate a buy signal from an oversold level on the monthly chart at that bottom.|
|Using the moving average convergence/divergence (MACD) on a monthly chart, you would not have had a chance to get into this position until 2009, and that would been a losing trade. The system would eventually make money, but it would not be nearly as much as a buy & hold investor. Like with many big winners, there was no pullback in the momentum indicators after the stock started moving higher.|
|However, if you used a shorter time frame such as the weekly chart (Figure 2), you could have turned $1,000 into about $130,000 using the MACD and being long only. In order to do so, you would have to know that HANS would be a big winner over time. Its industry is boring and unlikely to get anyone's attention.|
Finding the 10-baggers of the future is a challenging task. It is worth spending more time looking at what they have in common.
Click here for more information about our publications!