Page 240 - How to Make Money in Stocks Trilogy

122 A WINNING SYSTEM

The Value of Market Corrections

Since 80% to 90% of price patterns are created during market corrections,
you should never get discouraged and give up on the stock market’s poten-
tial during intermediate-term sell-offs or short or prolonged bear markets.
America always comes back because of its inventors and entrepreneurs and
the total freedom and unlimited opportunity that do not exist in communist
or dictator-controlled countries.
Bear markets can last as little as three, six, or nine months or as long as
two or, in very rare cases, three years. If you follow the sell rules in this book
carefully, you will sell and nail down most of your profits, cut short any
losses, raise significant cash, and move off margin (borrowed money) in the
early stages of each new bear market (see the success stories at the end of
the book).
In fact, Investor’s Business Daily conducted four surveys in late 2008 that
indicated that about 60% of IBD subscribers used our rules to sell and raise
cash in December 2007 or June 2008 and thereby preserved most of their
capital prior to the more serious decline in late 2008 that resulted from the
subprime loan debacle.
Even if you sell out completely and move to cash, you never want to
throw in the towel on stock investing because bear markets create new bases
in new stocks, some of which could be the next cycle’s 1,000% winners. You
don’t foolishly give up while the greatest opportunities of a lifetime are set-
ting up and may sooner or later be just around the corner.
A bear market is the time to do a postanalysis of your prior decisions. Plot
on daily or weekly charts exactly where you bought and sold all the stocks
you traded in the past year. Study your decisions and write out some new
rules that will let you avoid the mistakes you made in the past cycle. Then
study several of the biggest winners that you missed or mishandled.
Develop some rules to make sure that you buy the real leaders and handle
them right in the next bull market cycle. They will be there, and this is the
time to be watching for them as they begin to form bases. The question is
whether you will be there with a carefully thought-through game plan to
totally capitalize on them.

Other Price Patterns to Look For
How to Spot a “Saucer-with-Handle” Price Pattern
A “saucer with handle” is a price pattern similar to the cup with handle except
that the saucer part tends to stretch out over a longer period of time, making
the pattern shallower. (If the names “cup with handle” and “saucer with han-
dle” sound unusual, consider that for years you have recognized and called