This article discusses
leading stock market indicators.
Here are the five best performing stock market indicators:
Sentiment index. The number of bearish investment
services as monitored by Investors Intelligence, a stock-market
advisory. Bullish sign: Almost 50% of the investment advisers are
bullish. Fewer than 17.8% of the advisers are bearish. (The advisory
consensus is usually wrong at significant turns in the market.)
Member trading. Bullish when members of the New York Stock Exchange
(NYSE) swing from the sell to the buy side. Bearish when they swing to
the sell side. This indicator has a bias toward the sell side as a
general rule, so deviations are what are significant.
Funds' cash. Bullish when funds have more than 9.4% in cash. Bearish
when cash is below 6.2%.
Swing direction. Swings of more than 5 % on the Dow. Bullish when up.
Bearish when down.
Advance-decline figures. Two week daily average of advances minus
declines on the NYSE as a percentage of total issues traded. Bullish
when over + 13.8 %. Bearish when below -18.2%.
Investment strategy: The study that analyzed these indicators suggests
that long positions in the stock market are justified when at least four
out of five of the above indicators are in a bullish mode. Hold
positions until the majority of indicators turn bearish. Sell short only
when four out of five are in a bearish mode.
See
stock market indicators
for more information.
And Now here are 10 stock market traps:
Getting caught up in the bargain-hunting game. The stock market is not a
supermarket. If a stock is declining, despite what logically appears to
be a very cheap price, there is a good reason for it. Professional
traders may be aware of bad news about the company that is not generally
known. Better strategy: Buy stocks that are acting better than the
market as a whole. (Stocks that outperform the averages during rallies
and declines.)
Being too quick to take profits while holding on to losers. Most
investors buy a stock at, say, 20, and they sell it at 23 or 24. They
may do this successfully a few times. The trap: Eventually they buy a
loser and watch it plummet, wiping out all their previous profits.
Preferable: Let your winners run. Cut your losses.
To
Leading Stock Market Indicators - Top
Averaging down. Most investors think that if a stock
is a good buy at 20, it must be an even better buy at 15. Common sense
rule: If a stock acts poorly after you buy it, you probably made a poor
decision. Admit your error, and move on to another situation. Even the
smartest professional investors make mistakes. It's how you handle these
mistakes that makes winners out of losers.
Buying stocks based on news headlines.
Stocks go up in anticipation of favorable news. When
the good news finally comes out, it may be too late to buy. The stock
may be close to a top.
Holding a stock without a stop-loss order.
The stop-loss gives you selling discipline. And it enables you to cut
losses and hold onto gains. Where to place a stop-loss order: Just below
the last meaningful low in the stock.
Buying a stock without a potential upside target in
mind. Learn how to evaluate the risk/reward ratio of a stock. If you buy
a stock at say, 20, and you see its downside support as 15 and its
upside potential is 35, you have an attractive speculation. Rule: Always
look for at least a three-to-one risk/reward ratio.
Trying to be fully invested all the time. There are certain times when
it's better to be out of the market altogether. Example: 1973-74.
Buying a stock without looking at its chart pattern. First determine
from the chart whether the major trend of the market is up. Then look
for the strongest group in the market. Last, pick the stock that shows
the best relative strength of the group. Key: Look for a stock that
isn't too far above its support level. That way if you are wrong on
timing, the stock might still find support only a little below where you
bought it.
Trying to catch the exact low of a stock. It's nearly impossible to do
consistently. Stocks frequently take a long time to bottom out. Thus,
your capital may sit idly for some time before the stock breaks out of
its base.
Being afraid to sell short. Simply forget the specter
of unlimited losses in a short sale with a limited gain. You can avoid
the prospect of enormous losses by shorting with a buy/stop loss order.
Source: Consumer Information Center
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