Wednesday, July 21, 2010

Stockbee Market Monitor

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Today I wanted to talk about the Stockbee Market Monitor. As you know, I've discussed at length the steps to determining the overall market direction. Part of the CANSLIM strategy is to only invest when the market direction is in an uptrend. This is in place to help you preserve your capital. No one is immune from the trend of the market. Most stocks go down in a downtrend. The importance of following the trend can be the biggest difference from being a successful investor and a losing investor.

Stockbee has spent a great deal of time and effort on his blog reviewing market direction. He's explained in great detail how he would spend months working to gain 30-40% and then to give it right back because the market direction turned. Like any good investor or problem solver, he set out to make the IBD system better. Hence, the market monitor.

When monitoring the market, both Stockbee and William O'Neil will tell you that no system is 100% full proof. No system is correct 100% of the time. But for both, it works well enough for them. The key to Stockbee's techniques for determining market direction is measuring market breadth to a greater extent than the IBD method. Other successful investors will probably tweak a method until it works for their systems. I know that chrisperruna.com uses the New Highs-New Lows method which has proven to work well for him.

The idea behind any measure of the direction of the market is to get an early warning signal that a storm is coming and the market will turn soon. As an investor in individual stocks, you must heed these warnings by getting out of your positions until the storm passes.

Because it's stressed so much by Investor's Business Daily (it's on the front page), and investors like Stockbee who have a wide following, the one thing that you must learn first is that you must have a system for measuring market direction in your stock market investing arsenal. Take a successful system and put your own twist on it if you must just like Stockbee did.

I wrote about one of his unique strategies in another post called Stockbees IBD 200 Strategy if you want to read more about it as well.

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