How to stay out of trouble | stockbee

7/10/2014

How to stay out of trouble

Last 3 trading days the market entered correction phase and many momentum leaders faced selling . You should not be surprised by this. That is the nature of market.

Excessively bullish breadth tends to be unsustainable and leads to corrections. The question is how to define excessively bullish breadth?

I track a very simple number for this. The number of stocks up 50% in a month. If you study this number you will find the number remains below 20 most of the time. When it reaches above 20 you will see market corrections in next 3 to 15 days time frame.




Every Time you see the number go above 20 you have to get cautious. You will discover sooner or later in next few days heavy selling occurs. 

This is a very simple tool which will allow you to stay out of trouble and be warned in advance. Accordingly you can take profit , tighten stops on existing positions or reduce open risk. If you do that you will not be surprised by market weakness.

On June 30 I posted a video on members site pointing out this number and warning them to be cautious and not get carried away by excess bullishness. Those who acted on it are in happy camp. 

The secret to making and keeping your profits in swing trading is to identify good and favorable periods for swing trading and ahead of the time identify likely risky periods and change your strategies accordingly. If you do that you do not suffer draw downs, you do not suffer from psychological problems and you are happy trader. 

If you do not do that you will go through up and down cycles where you will make profit and give up profit. If you do not do that you will get aggressive in your trading at exactly the wrong time. If you do not do that you will be making fun of short sellers and bears at exactly the wrong time instead of protecting your profits. 

If you are a motivated trader who really wants to make lot of money trading and prosper for many years learn about market breadth and how to use it to find turns in market.

It will help you stay out of trouble.

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