Key Market Factors to Recognize and Use

Tags: stock market, stocks, stock market useful guide, stocks tips, Earn Money from stock, How to make money in stock market

Key Market Factors to Recognize and Use

During a bear market, stocks frequently open strong early in the morning and close weak by the end of the day. During bull markets, stocks tend to open down and come back later in the day to close up strongly. (The market opens at 9:30 a.m. and closes at 4:00 p.m. New York time, 6:30 a.m. and 1:00 p.m. California time. But it is subject to periodic change.)

Catch a shift with this easy test: see if you show a profit on any of your last four or five purchases. If you haven't made a dime on any of them, you might be witnessing a negative shift in the overall market.

Additionally, if stop-loss orders are used and either placed on the stock exchange specialist's book at specific prices or mentally recorded and acted upon, the market that is starting to top out will mechanically force you, robotlike, out of many of your stocks. A stop-loss order instructs the specialist in the stock on the exchange floor that once the stock drops to your specified price, it then becomes a market order and
will be sold out on the next transaction.

In general, I think it is usually better to not enter stop-loss orders. Watch your stocks closely and know ahead of time the exact price at which you will immediately sell to cut a loss.

If, on the other hand, you can't watch your stocks closely or you are the vacillating-type investor who can't make decisions to sell and get out when you are losing, stop-loss orders might help protect you against your distance or indecisiveness.

If you use them, remember to cancel the stop-loss order if you change your mind and sell a stock before the stop-loss order is executed; otherwise, you could later accidentally sell a stock you no longer own. Such errors can cost you money.

One of the biggest faults investors have is that it takes time to reverse their positive views. If you sell and cut losses 7% or 8% below buying points, you will automatically be forced into selling as a general market correction starts to develop. This should make you begin to shift into a questioning, defensive line of thinking sooner.

A sophisticated investor who uses charts and understands market action will also find there are very few leading stocks that are correct to buy at a market-topping juncture. There is also a great tendency for laggard stocks to show strength at this stage. Seeing a number of sluggish or low-priced, lower-quality stocks becoming strong is a loud signal to the experienced market operator that the upward market move may be
near its end. Even turkeys can try to fly in a windstorm.

A peculiar tendency during a bear market is for certain leading stocks to resist the decline and hold up in price, creating the impression of true strength. This is almost always false and simply postpones the inevitable collapse. When they raid the house, they usually get everyone.