Stock Market Wisdom - Learning to Trade Like the Legends, Part 9Top traders and investors have different opinions, concerning the buy-and-hold strategy. Basically, this strategy dictates that once you buy a stock you like, it is held for years or even decades, no matter what. The belief is that staying fully invested all the time will give you profits in the long run. This includes hanging onto your stocks through major bear market cycles. After the 1929 stock market crash, it took 27 years for the market to climb back to its 1929 high. The NASDAQ currently is not even close to getting back to its 2000 high, after the crash that began that same year. We are at 10 years and counting. Talk about a wait and hope game. I believe the buy-and-hold strategy is pure insanity, unless you can buy fundamentally strong stocks at, or near the end of, a major bear market, when valuations are low. Almost all stocks fall during a bear market, but only some of them recover after a long period of time. Here are some random gems of trading knowledge. You are better off owning the wrong stock at the right time, than the right stock at the wrong time. There are times when you should be out of the market completely. A stop-loss order is a tool that can help you become successful. This also includes the "trailing" stop-loss order. It is important that your stock has enough following to make a string of new highs. When volume rises substantially, somebody knows something. If price rises, along with volume, that could be considered a buy signal. Let volume and price go up some before you buy. These are the two best confirmations. When most people are bearish, most people are probably wrong. When most people are bullish, they might be right sometimes. When a stock stays in a very narrow trading range for a long time, and then comes out of it on the up-side, you can be pretty sure the stock has been under accumulation. This is quite bullish. When a general market movement to cover begins, prices tend to go up very rapidly. This is called a "climax run". Get out immediately and protect your profits. It is important to follow a trend, but you should always be watching for a reversal. The charts will give you a clear signal with price and volume analysis. If a stock price goes up, but volume stays low, do not buy. When both price and volume rise together, that is your signal to buy. If the general stock market falls below its 200 day moving average, it is probably wise to sell your stocks. The market is trying to tell you something. Markets tend to go up just when nearly everybody seems to agree they must go down. Always cut your losses short, and let your profits run. Buy stocks as they are making new highs, and attracting institutional attention. Do not buy when they are down at the bottom.
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