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broke below the 50-day moving average on heavy volume in October. He
sold his entire position, but by the end of the trading day, Ascend closed back
above the 50-day moving average. Jim realized that he had made a mistake in
selling the stock, but he didn’t go back in. The shakeout had rattled him.
Ascend went on to rocket higher in the following months, and Jim missed
some big gains.
After that, Jim made a rule that if he gets shaken out of a position, he
must go back into a stock on the same day if the stock retakes the 50-day
moving average. This benchmark line is a place where large institutional
players will often come in to support a position that they hold, so it is a sign
of strength if a stock retakes that line with heavy volume on the same day
that it falls below it.

Know When to Go to Cash
By 1999, Jim had made over a million dollars trading, but this was the roar-
ing 1990s, just before the tech bubble burst. Things seemed a little too good
to be true, and that was the understatement of the decade. The market
avalanche was about to begin.
In 2000, Jim was running a $150 million account for Morgan Stanley. He
saw that the market wasn’t acting right: Leaders were topping, many with
dramatic climax runs. From January through early March, Qualcomm
zoomed 42% in four days, Qlogic surged 75% in 11 days, and Yahoo rock-
eted up 90% in less than a month. This was abnormal activity. The number
of climax runs that were occurring all at the same time was a warning sign to
the seasoned investor that the market was topping. Jim went completely off
margin and sold all of his holdings. He remembers being in a hotel in
Arizona on St. Patrick’s Day, all in cash, celebrating his gains. Then the crash
came. Jim had avoided catastrophic losses and saved his clients and his firm
enormous amounts of money as a result of heeding what he had learned
from How to Make Money in Stocks and what he was reading in IBD at the
time about the overall trend and the action of leading stocks.
After the top, people were sending Jim large amounts of money to invest,
thinking that it was a great time to enter the market, but Jim let the money
sit in cash, because he knew the trend was down: “When it is obvious to the
masses and they begin to jump into the market with both feet, you know
you’ve reached a major market top.” Clients would call, begging him to buy
Cisco Systems after it was down 40%, thinking it was a bargain, but Jim
knew that buying a stock that was doing a nosedive was like trying to catch a