Page 1013 - How to Make Money in Stocks Trilogy

6 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

• BASIC GAME PLAN FOR MAKING MONEY IN INDEX-BASED ETFs •

Step 1: Buy an index-based ETF when the outlook changes from
“Market in correction” to “Confirmed uptrend.”

Step 2: Sell 50% when the outlook changes from “Confirmed uptrend”
to “Uptrend under pressure.”
Step 3: Sell the remaining 50% when the outlook changes from
“Uptrend under pressure” to “Market in correction.”

Note: In particularly volatile markets, the outlook may change imme-
diately from “Confirmed uptrend” to “Market in correction,” without
going through the “Uptrend under pressure” stage. In that case,
reduce your index-based ETF holdings to zero when the outlook is
“Market in correction.”

Protect Your Money with Stop-Loss Rules
To protect yourself from a sharp market downturn, you can set stop-
loss orders ahead of time with your broker (Chapter 4). Here are some
simple guidelines you can also follow as part of this ETF trading plan,
in conjunction with the 3 steps outlined above:

• Sell 50% of your index-based ETF position if the index
closes 0.5% or more below the follow-through day closing
price. (A “follow-through day”—see Big Rock #1, Chapter
3— is what triggers a new market uptrend and causes the
Market Pulse outlook to change from “Market in correc-
tion” to “Confirmed uptrend.”)

• Sell 100% of your remaining index-based ETF position if
the index drops 2.5% (intraday) below the follow-through
day closing price.

Learn More
For more details on using this approach, see the ETF section of IBD.

The following chart shows how this simple approach can help generate
significant profits. Think back to the severe bear market that started in late
2007, then look at how the Market Pulse alerted readers to that change in
trend—and later noted the start of a new bull cycle in March 2009.