Monday, December 6, 2010

Market In Confirmed Uptrend


The current outlook was changed to market in confirmed uptrend by the editors of the Big Picture column in Monday's edition of the IBD. The mood from the writers suggested to me that while they did change the outlook I wasn't convinced they felt the change would be for real. However, opinion of what the market is doing is not what matters. The only thing that matters is the rules of CANSLIM. And currently the experts suggest the market has turned for the better. Our job as an investor is to heed only what the market is telling us and nothing else.

Here's the problem. While our gut might tell us that this is a false signal, we must treat every confirmation as the real deal. You never know what the future holds. It's a battle of our emotion over the cold hard facts. The reality is that this is actually hard to do. But getting a handle on your emotions is key if you are going to make money investing in the stock market. OK. So, I know you know that. What do you do now that the market has changed direction? Follow these steps.

  1. Treat every uptrend the same. Once the market has confirmed an uptrend, start actively buying stocks again. Look for leaders breaking out on high volume. Each and every day, you should be adding and deleting stocks on your watch list. This is the first place you want to look for potential stock buys.

  2. Start watching the market for distribution days. If the market closes higher on higher volume, this is your clue to dig deeper. Read the Big Picture column daily. Watch the IBD TV Marketwrap video. Analyze the indexes on your own and learn how to read them on your own. Confirm what you think in the Investor's Business Daily.

  3. Follow sound selling rules. Remember to set a loss limit of 7-8% on every purchase. In addition, set a potential profit target of 20%. Keep your losses small but when you are correct try and ride those out.

  4. Look for stocks that are breaking out. I consider a breakout to be at least a 2% increase on a volume increase of at least 50%.

  5. Identify the best buy points to buy these stocks. Don't buy stocks that are overextended in excess of 5% of the pivot point.

Now that you have the green light, it's time to get busy on your stock market investing program. Learn to follow a system and not your emotions. This will provide you with the best results over the long term.

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