Stocks are definitely an emotional investment. This is why stocks have historic patterns that many investors like to follow. For example, on the first trading day of April, the Dow has been up in 15 of the last 19 years. No economic reasons can be spotted for this in most cases. Emotionally though, April is the final month of the best six months of the year for stocks and many investors know this and therefore buy into the final month at the start. This year we are seeing a lot of that buying in the final day of March. Over the last 19 years, the Russell 2000 (IWM) has been up 14 of the last 19 years on the final trading day of March. The Dow though has been down in 15 of the last 25 years. Certainly interesting statistics to be sure but not the best way to invest for any kind of consistent returns while keeping safety of capital in focus.
When To Stay and When To Leave
When investing in stocks that sit at all-time highs investors need to know when to stay and when to get out of stocks. They need some sort of guide to help steer through what is often a rocky and wild ride to keep capital safe but allow it to keep generating profits.
While investors may like to trade based on emotion, there are others like myself who prefer to look at a technical picture. Since emotions are connected directly to stock investing, technical indicators can follow that emotion and apply a variety of technical expertise to determine everything from momentum to volumes to sentiment.
Being On The Right Side Of Market Direction
By understanding the technical outlook, investors are able to know when it is safer to invest in stocks and when it is better to “be prepared” for possible problems such as corrections. By understanding the general market direction investors are better able to then understand the trend or direction of their favorite stock. Since almost 90% of stock tend to follow the general market direction trend and in a bear market 95% of stocks, it is important to have some knowledge about the technical aspects of the market direction and where stock could be heading. It is important when making an investment decision to being on the right side of the market direction. There is nothing worse than selling puts or buying stocks just as the market is about to plunge, or selling calls or shorting stocks as it about to rally. Technical indicators can assist by giving us a road map of valuation levels to watch to tell whether a rally is “real” and the start or continuation of an uptrend, or whether it is a one or two-day jump which will be followed by more selling. The same applies in a bear market.
This article looks at a strategy I use to assist in understanding what the present market direction is about and what we as investors need to be aware of to remain invested at the present time with safety of capital as a prime concern. The strategy outlined can be reused in any market environment to understand whether there is a breakout at hand or a breakdown.
Market Direction Strategy Outline
This is a strategy discussion article for FullyInformed Members. FullyInformed Members can can login directly through this link or Members can sign in to the full members site here. Non-members can join here.
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)
Market Direction External Links
Market Direction IWM ETF Russell 2000 Fund Info
Market Direction SPY ETF 500 Fund Info