Page 1238 - How to Make Money in Stocks Trilogy

220 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

As we go through this, don’t forget why we put so much emphasis on
following sound buy rules:

Stocks that pass the Buying Checklist have the greatest potential to
make a big gain.

And by making each stock prove itself before you buy, you significantly
increase your chances of starting out right—with a nice profit instead of a
loss. That’s why you want to always use this checklist as your starting point:
Less risk, more reward.

■ ✔ Breaking out of a sound base or alternative buy point

Is the stock nearing the ideal buy point in a cup-with-handle, double bot-
tom or flat base—or an alternative buying area like a 3-weeks tight or pull-
back to the 10-week line?
To help with your analysis, do a search on Investors.com to see what IBD
has written about the stock’s latest chart action. And if the stock is on the
IBD 50, Your Weekly Review, Sector Leaders or IBD Big Cap 20, check the
latest chart analysis. Does that analysis match what you’re seeing?
If the stock is not forming any recognizable pattern or buy point, what
does that tell you?
It means you need to stay patient. Stick to your rules and wait for a proper
buying opportunity to emerge. A little discipline goes a long way to keeping
you profitable and protected!

Is the Pattern Sound—or Suspect? Find Out with the Base Checklist
Download and print this little “cheat sheet” to help you quickly evaluate a
cup-with-handle or other pattern. You’ll find the Base Checklist at
www.investors.com/GettingStartedBook.

■ ✔ Volume on day of breakout: At least 40%–50% above average

If volume is below or just barely above average, that makes the breakout
more suspect. Look for a big spike to show enthusiastic institutional buying.
Remember: 40%–50% is the minimum benchmark. On a strong break-
out, you’ll often see volume come in 100%, 200% or more above average.