Key Principles:
- Market Context is Paramount: Only consider individual stocks when the broader market shows an uptrend. This can be gauged through major indexes like the S&P 500 or the Nasdaq and supporting technical indicators.
- Fundamentals Matter: Prioritize stocks from financially sound companies with strong growth indicators such as revenue, profit margins, and a competitive advantage within their industry.
- Recognize Chart Patterns: Utilize specific chart patterns to pinpoint optimal buy points. Examples include:
- Cup-with-Handle: Buy point slightly above the “handle”.
- Flat Base: Buy point at the prior high before consolidation.
- Double-Bottom: Buy point just above the middle peak of the “W” formation.
- Buy Within the Zone: After identifying a buy point, operate within a “buy zone” extending 5% above it to accommodate price fluctuations.
- “For example, if a stock’s buy point is $100, the buy zone would range from $100 to $105.”
- Timing is Key: Buy at the breakout point, ideally as the stock surpasses its base, to maximize upside potential.
- Utilize the 10-Week Moving Average: The 10-week moving average (or 50-day on daily charts) serves as a potential support level for additional entries in already performing stocks.
- “Adding Shares at the 10-Week Line: If a stock has climbed and then retraces to its 10-week moving average, consider buying more shares if the price holds at or above this level.”
- Manage Risk and Secure Profits:
- Sell incrementally as the stock rises to lock in profits.
- Employ stop-loss orders to limit potential losses if the stock falls 5-8% below the buy point.
- Monitor the 10-week moving average for potential weakness signals.
( Source : Mastering the Art of Stock Buying: A Methodical Approach for Exceptional Results (overwi.se) )