In todays market the large institutions are buying shares by the millions. This is a huge demand on the stock and when demand is high the share price rises. So I make sure that the stock is being bought by institutions. This appears as high volume. Since the institutional buyer doesnt want to buy all these shares at once and drive the price too high in one day, they will normally purchase shares over time, sometimes a week or a month or even several months. There are so many institutional buyers that while they are buying the volume will increase dramatically over time. This volume can be seen on charts easily. I watch for a rise in price on increased volume over at least four days in a row. I sometimes use three days, but that is much riskier. On a chart you will see the rise in stock price and the increased volume for only three to seven days. Then the stock may back off a bit or flatten out for anywhere from a few days to a year or more. This flattening is called a base if the share price remains in a tight trading range. This seems to give the share price energy. If the company continues to perform well there will be a breakout on the price of the stock and it could shoot up dramatically in a short period of time. A breakout is when the high point to the left of a base is reached again and on large volume rises above the previous high. This is a perfect buy point. Try not to buy the stock after it extends to far above this buy point. You will usually only have a day or two to buy the stock at the perfect buy point. If it extends too high there is a chance the breakout will fail and the price of the stock could easily fall back to or below the base, so be careful. A very strong stock will rise, flatten for a short time of anywhere from 3 days to 3 weeks and then breakout and shoot up again. This will happen several times so there are what looks to be tiers to the chart. These are all breakouts with different buy points. The more breakouts there are the more risky the purchase if you purchase after the 3rd breakout. The institutions may start taking profits in larger groups now and the price will start to fall or flatten into another base. The length of time of the base varies so a strong company share price may move up quickly like the example I give above or the base may last for a period of months or years and be harder to spot. Look at different time periods of the charts so you have a clear overall picture of where the technical clues stand out. Of course any stock may shoot up like a rocket and seem to go forever, but what goes up must come down and a stock that rises like a rocket usually falls like one too. The hard part is guessing when this fall will happen. As you can probably tell, I dont like to guess where money is concerned. When you have a profit of 20% in a stock make sure you never hold the stock until the profit is erased. Sell before that happens. I will sell a stock when the price backs off on higher volume for three to five days. But if the stock loses 5% to 8% immediately after I bought it, I will sell as soon as I can. If you have that 20% profit though, wait for the higher volume sell signal. Sometimes the institutional traders will try to shake loose the weak, timid and scared shareholders from their shares and then drive the price higher again. This is called a shakeout. This will only happen on low volume so watch for the falling share price on higher volume. This is a true sell signal. The higher your percentage gain the more room you have to maneuver as far as selling or holding the stock is concerned. If the sell signal doesnt come you can let it ride but watch carefully in the later breakouts. After three or more breakouts the steam may be gone. You may wish to recoup your original investment by selling some of your shares and letting the rest pick up any more gains or hold for a long term investment. Or you could sell enough to have a decent profit and let a smaller percentage ride. Watch for the sell signals and let the rules guide you. If you sell all your shares for a 20% or more gain, dont worry. Nobody gets broke taking a profit. Five of these trades a year and you have doubled your money. |
