Tuesday, July 20, 2010

Should People Invest In Stocks In This Economy?

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It's pretty common for the average every day investor to get wrapped up in whether people should even invest in stocks in this economy with the recent recession and all. It's easy to get wrapped up in all the doom and gloom the media likes to spread. But the answer to the question really needs to be answered by the market itself. What you want to do is learn how to interpret the market indexes and let the market tell you -- not the media -- if you should be in the market.

If the market indexes have rallied and confirmed a follow through, then the yes, people should be in stocks. However, you must be willing to cut your losses. If the stocks you choose fall to 8% below your purchase price, you must sell them to preserve your capital. If the market is still in a confirmed uptrend, then try again.

Keep tabs daily on the market indexes and if they show too much distribution (selling) then the market is telling you that you shouldn't be in stocks at that moment. Until you can read the market, and even if you can, follow the Big Picture column and the IBD TV Market wrap. They will tell you if the market is:


  • In a confirmed up trend and it's time to be in the market

  • If the uptrend is under pressure when you shouldn't buy anything and watch your current stocks closely

  • In a downtrend and you should be moving to cash

They compare it to a stoplight. When you have the green light, ignore the media. Ignore the bad news and focus solely on whether the market says go and try not to let your emotion drive your stock market investing decisions. I've talked about this before if you want to read more in my post called Should I Invest In The Stock Market In This Economy.

Good luck!

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