Monday, May 16, 2011

How To Use The Big Picture Column In The Investors Business Daily

Well, I've taken a few months off from writing and figured that I would start things back up by talking about how to use "The Big Picture" column in the Investor's Business Daily. Your first step each day should be to check the general market direction and you can do that by reviewing The Big Picture column and it's main feature - the "Market Pulse". The thing you really want to know is what the editors of the paper think the current outlook is based on the CANSLIM investment strategy.

There are three outlooks in the Market Pulse section. They are:
  1. Market in correction
  2. Uptrend under pressure
  3. Market in confirmed uptrend

Investor's Business Daily suggest that you use this as a stoplight system with regard to whether you should be invested in the market. The green light is market in confirmed uptrend. Yellow is uptrend under pressure. Finally, the red light would be market in correction. Just like when you are driving, pay attention to the traffic signals. Three out of four stocks follow the market trend. Why fight the market? Just go on green, be cautious on yellow and stop on red.

When the market is in a confirmed uptrend, you want to keep an eye on distribution days. Distribution days are when the market closes down in price on higher volume. As these days add up, the market pulse keeps tabs of the number of days each index has tallied in the confirmed uptrend. During this time period, the CANSLIM strategy recommends that you be actively investing.

When the market uptrend is under pressure, you want to keep an eye on whether the indexes erase the distribution days that have piled up and be ready to sell your current holdings.

When the market is in correction, you want to watch for an attempted rally and a follow through day a few days later. When the market is in a correction, it's a good idea to liquidate your holdings if your stock shows signs of weakness.

While the Market Pulse gives you a snapshot of the current outlook, it also gives you a summary of the days action and leaders up or down in volume. The rest of the column provides a summary of what happened to the indexes for the day.

For me personally, I typically review the major indexes each day to see what I thought happened and formulate my own summary of what happened. Then, after the paper comes out, I confirm what I thought with what the editors say.

I also watch the IBD TV Market Wrap to get a feel for what the market is doing.

Start everyday by reading "The Big Picture" column. Even if you only look at the current outlook, you will be way ahead of most investors by knowing what the overall trend of the market is and that's the biggest part of the battle.

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