Making money in the stock markets can be a challenge but it can also be easy once you learn some of the rules to successful investing and speculating. When I say that making money can be easy it doesn’t mean there is not an abundance of work to be done before you might make it happen.
For the sake of this article I am going to assume you know what a stock, mutual fund, or ETF is and how to buy and sell them online or through your broker if you prefer.
Buying the best of breed in a stock, mutual fund, or ETF is usually a wise choice if you plan on investing for the long term. The market melt downs beginning in 2000 and 2007 teach you that even the best of these issues will lose value in a declining market. Even buying best of breed can cost you your money. Learn how to invest and you can buy the strongest stocks and exit when they show signs of weakness.
This article can help you begin your journey down this path if you are new to the markets or if you are an occasional participant. Even experienced investors sometimes forget the basics of investing and need to be reminded of the simple tools of observation we sometimes take for granted.
It is helpful to compare a stock to the activity of the market itself to see if it is stronger or weaker than the market overall. This can be done in, numerous, stock charting software packages available. Worden Brothers TC2000 and Metastock by Equis are two such software packages that offer this feature. I have personally used both and find them very helpful.
To compare two or more issues or indexes to each other is easy. You create an overlay by adding additional symbols to the symbol template you are viewing. Once you have done that you can graphically see the correlations or lack of correlation between various stock issues.
When you do this it becomes easy to see that some stocks are rising faster than the index they are a part of and that others rise slower than the index. It is also easy to see which issues are falling, perhaps, when the market is rising or if it is falling faster than the index. These are easy visual ways to see the strength or weakness of a particular stock issue.
Personally, I enjoy looking at stock charts and exercising my skills of detection. To me this is a skill no one can take away from me and can always serve me in my effort to create additional income. Making a habit of reviewing stock chart patterns will make you wealthier over time.
Watching a chart pattern rise and fall gives you key clues as to what the future will hold for the stock issue you are watching. Comparing the stock pattern to the activity of other stocks in the same industry can give you a significant upper hand in picking the right investment choice.
ETF’s generally comprise stocks within a given index, industry, or industry sector. So if you wanted to review stocks in the S & P utility index you would find electric utilities, gas utilities, water utilities etc. If you only wanted to review electric utilities then you would look to a sector ETF or sector fund which focused on electric utilities. This way you are basically comparing apples to apples and not apples to oranges. There are times when electric utilities may perform differently than water utilities or gas utilities and so you want your comparison’s to be closely similar so you can pick the strongest of the ones in similar industries or sectors of those industries. If you do not you cannot make a fair comparison.
You can compare one sector against another to determine which is stronger and that would be a relevant comparison. Do not do this with individual stocks, in different sectors, as your results may be flawed.
This weekend I was updating my website and I was reviewing stocks in the Dow Jones 30 industrial average. Two stocks in this index also are in the same sector of their respective industries and they are VZ Verizon, and T AT&T. You probably recognize both of them as telephone/cell phone providers.
I decided to post their charts on my site and provide a brief description of each stock issue and its trading activity over the last 6 months or so. In their charts you can see subtle and significant differences in their behavior’s that would give strong indication about which one you would have made more money purchasing than the other.
Please visit my website and you can see the charts in the Jan 10, 10 newsletter just posted. The charts are at the bottom of the page as I reviewed them in alphabetical order. These charts are a helpful reminder that to make money in the markets you need to follow the money most of the time to do so.
In looking at these two similar sector stocks you will see differences in their price action over the same period of time. It is, easily, obvious that price is rising faster and falling slower over this time span in one stock than the other. This comparison is not constant and varies in the two issues discussed here. The fluctuations in price that are evident, in the charts, prove the value of comparison investing when it comes to buying stock issues.
Remember these price relationships change over time and it is important for you, as an investor, to regularly review these comparisons to make sure you are invested in the strongest possible stocks. If you do not take time to make these reviews you may find your investment results lagging the markets. Money flows from one industry and sector to another. Regular reviews can help you to keep up with the strongest trends in the market.
For more on Trendlines and how they can help you in your investing goals please visit: http://www.trendlinebreakoutstocks.com
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