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Secrets for profiting in bull and bear markets Chapter 4

Chapter 4 Refining the buying process. Now that we've learned to first check the market's major trend and uncover the few best group, we are ready for the ultimate step | CHAPTER 4 REFINING THE BUYING PROCESS Now that we ve learned to first check the market s major trend and uncover the few best groups we are ready for the ultimate step. It s now time to narrow our choice down to a single buy candidate from the positive sector. How do we determine which one or two stocks from that group should be purchased Is there really a way to predict which issues are likely both to go up and turn in an A performance There definitely is While no system will ever be a perfect forecaster of the future we can learn some simple rules that will put the probabilities of success strongly in our favor. THE LESS RESISTANCE THE BETTER I ve already explained the concept of resistance but let s quickly review it again and then delve deeper. This is going to be very important to your future batting average so we ll go over it carefully. On Chart 4-1 stock XYZ formed a trading range in the 18 to 20 zone after undergoing a severe decline. The area near 18 became a temporary floor of support while this trading range was in existence. On the upside since rallies failed near the 20 level each time they attacked that price 20 became resistance during the trading range. Then after several weeks of zigs and zags within this neutral range XYZ broke below the 18 support level. This of course was a negative indication and signaled the start of a new decline. After this new bout of weakness XYZ stabilized at a low of 13. It then moved into a new trading range and built a solid base. New support 96 Refining the Buying Process 97 CHART 4-1 was now at 13 and resistance at 15. Finally it overcame the 15 resistance and more importantly also advanced above the MA. You are now seasoned enough to know that this stock is a buy. But do you want to purchase it Not necessarily. Even though the probabilities are very strong that this stock is going to advance and you ll make money that isn t enough. At first this may sound crazy to you. I wouldn t be surprised to hear you say What .