Stock Market Leaders and Laggards

Leaders are stocks that breakout immediately when the market confirms a new rally. In the first several weeks, strong stocks with leadership ability will breakout on volume above their 50-day average. Some of these stocks will breakout on the largest volume ever. Typically, newer stocks that have come public in the past few years will have the most strength for sizable gains.

As multiple stocks breakout from similar industry groups within larger sectors, a confirmation of broad leadership is established. “Sister Stocks” will usually move in crowds and lead the way in similar fashion. Their charts will show some resemblance and their action with be closely related. When one leader goes up, so will the others in the group. It’s not an exact science but almost anyone could chart the progression of leaders during the beginning stages of a rally.

Laggards are stocks that don’t breakout immediately when the market confirms a new rally. They become laggards if they wait a few months to finally breakout while dozens of other stocks have already gone on to excellent runs. Investors must be on the lookout for a healthy correction after several strong months of advancement within a specific industry group or broad sector. As the correction materializes, the original leaders will be poised to continue their run so long as the ‘M’ in CANSLIM is still positive. ‘M’ stands for market health.

Investors must be on the lookout for stocks that only start their advancement on the overall correction. These stocks tend to be weaker and are more prone to failure. The original leaders will have more institutional support and are more likely to advance further. Laggards will often sport a nice breakout during the correction phase, only to disappoint the investor with a reversal.

Let’s use a hypothetical example: XYZ breakouts out in October and runs up 50% in 3 months and then pulls back to correct. ABC breakouts out 3 months later in January while the correction is taking place (from the same industry group) but has been stagnant the past 3 months as many other stocks in the industry groups have made nice gains (like XYZ).

Laggards stay stagnant during the beginning stages of bull markets. This doesn’t mean that they can’t have a nice run, it just means that the chances for failure are higher because “dumb money” may be bidding up the cheaper stock in that particular group.

The “smart money”, otherwise know as institutions may have ran up stock ‘XYZ’ for 3 months and will most likely allow weak holders to sell before they resume the advance. In the mean time, those weak holders may be the investors running up stock ‘ABC’ because it looks cheap. They may reason that it should be moving up because ‘XYZ’ moved up in the prior 3 months.

Finally, be careful and analyze each specific stock and situation before you make a commitment. This is a general rule to help you select a leader within a strong industry group. The market never works perfectly every time so make sure you are prepared for anything.

Find a Methodology and Minimize Investment Madness

There are many reasons to be investing these days, and too much opportunity to not have your money working for you.

However, I believe the majority of people dread having to deal with investment matters, and tend to jump into purchases and then hold their breath hoping for the best. After a long day at work and taking care of the family, it’s hard to get excited about reading up on your 401(k) options, Morningstar ratings and fund performances.

If this sounds like you, there are basically 3 choices.

You can have your investments professionally managed, you can continue as you have in the past & keep your fingers crossed, or you can find a methodology that objectifies the investing process (that’s buying and selling investments) and helps you maximize your long-term results.

To determine if you need help managing your investments(and this doesn’t necessarily mean having to pay for advice) you might want to ask yourself these questions:

=> Do I really have the time and interest to follow the market closely on a daily basis?

=> Have I done well in the past managing my own investments?

=> Do I really want to add another layer of work and responsibility onto an already busy schedule?

If you’re like most people, you would answer yes to some and no to others, so how do you decide? If you think you could have or should have done better with your investments, then you need some help. Don’t feel bad. Having counseled hundreds of people over the past 15 years I can honestly say that everybody needs some help, whether they are aware of it or not.

Why? This could come as a surprise, but, in fact, your financial life is a lot shorter than your physical life?

Most people who end up investing don’t really start working and making money until they are about 25 years old. Considering the average retirement age of 65, this gives you only 40 years to save and invest wisely.

If you make a poor investment decision, such as trying to stay fully invested during a bear market, you could lose big both in terms of diminished dollars and wasted time.

To drive home this important point, let me give you an actual example involving my own portfolio. For ease of illustration I have adjusted the beginning portfolio balance to $10,000.

During the period from 1/25/91 to 10/13/00 my $10,000 investment grew to $37,840, which is a 14.67% compounded annual return.

On 10/13/00, based on a methodology I was following, I liquidated all of my domestic mutual fund positions and moved 100% to the safety of my money market account. Thanks to this move, my portfolio retained 100% of its value on that date.

As we now know with hindsight, most people held on to their investment positions and have so far lost on average 50% to 60% of the value of their portfolios. For this example let us use 50%.

If I had held onto my position, my portfolio would be down to $18,920. Last time I hit that level on the way up was in 1995.

In other words, not only would I have lost 50% of my portfolio I would have lost even more by having used up 20% (8 years) of my total financial life.

How can you avoid mistakes like that in the future? Spend a little of your valuable research time looking for investment methodologies that allow you to side-step bear markets and let you move back in during bull markets. In other words, invest your time looking at methodologies instead of investments themselves. This will lay the foundation for more effective use of your money and time.

If you find a methodology that you like, and it matches your investment philosophy, stick with it for the long term. It should have the aspect of telling you when to get out of, as well as when to get into, an investment.

I suggest you follow these broad guidelines:

  • Don’t be afraid to take a small loss to avoid bigger disasters.
  • Stay away from commissioned sales people (because they have incentives other than your best interests), and if you use an advisor, be sure he or she is fee based.
  • Above all, don’t get overwhelmed by news, rumors and predictions that are irrelevant to your strategy.

If you take this advice, I guarantee that pretty soon sleepless nights will be a thing of the past and you’ll be on your way to more confidently and successfully (that means profitably) managing your investments.

Is it possible to trade forex online for free?

If you are interested in trading the foreign exchange market (Forex), then you may be concerned about any hidden costs that you could incur and if you can trade currency online for free. You will certainly be able to open a free account with most brokers that will allow you to practice your trading skills. You will not be charge for this service.

However, once you decide to open a live Forex account then that is another matter. For instance, your broker will definitely charge you a commission on every trade that you activate. This charge will take the form of a spread which is the difference between the buy and sell prices of currency pairs. This is why you are advised to select those pairs that exhibit the lowest spreads.

If you trade the EURUSD, then its low spread provides you with the best opportunity to trade currency online for free. You can cut your costs down even further if you choose the right forex broker.

This is because most forex brokers have a transparency policy which implies that they will never charge you additional fees on their services such as withdrawing and depositing funds. In addition, everytime you execute forex you will not be faced by a commission charge in the shape of a huge spread cost.

Excellent Forex Broker can do this because they make their income from the difference between your payout when you win and your refund when you lose. Consequently, right forex broker can almost allow you to trade currency online for free.

Taking beginner tips at trade forex online

forex-tips-2Everyone the world over has heard of trading in stocks, or foreign currency trade in some form or other. This may be from the stock exchange or simply the indices that are posted on the news but whichever way they have heard of it, the lure of making money always seems to be present. So the question remains, what can new comers do to get their foot in the door and have a go at trading themselves?

Online foreign currency trade sites are abundant in the current market and given that forex is one of the easiest ways to trade, it is not surprising that their user numbers are increasing greatly every day. This could be a great place for someone to start as they often have simple interfaces, self-explanatory features and an abundance of reading material and interactive trainers to get you going.

The first step is to learn all about forex trading and how they really work. forex trading in short are the choices you will have of which currency exchanges can trade in. each site will have their own selection to choose from so take some time to look into each one before you commit yourself to a site. As to the number of choices available, you may wish to choose a site that has several options available so you can expand your knowledge as you go. Alternatively, sites with less options often have more focused data available.