Page 913 - How to Make Money in Stocks Trilogy

Black Belt Trading: Investing Like a Pro 165

and perform the best a few weeks after a new uptrend begins are the ones
that may lead the new rally. Eve also monitors how the breakouts act to
determine the health of the rally. If a number of breakouts stall or begin to
fall below their pivot points, it may lead to a failed rally attempt.
To help assess the health of the market, Eve also monitors distribution
and accumulation days on the major indexes as well as price performance
and duration of the current rally relative to other market cycles.
Eve conducts a post analysis of her trades and has found that one of the
worst mistakes is to take a small profit in a big market leader. These are the
stocks that should be held for the bigger run. Eve bought eBay out of its
IPO base but was shaken out and never went back in, missing out on the
stock’s big move.
Once you have found a market leader, it’s important to put enough capi-
tal into it to make substantial profits. Your best-performing stock should be
your largest holding. eBay taught Eve a lesson.
As a result, she has learned to always be prepared to buy a stock back if it
subsequently turns around and starts to make another move.

Avoiding Emotional Trading
In order to control possible emotional trades made in the heat of the mar-
ket action, Eve has her rules written out and nearby. When she makes a
trade, she asks herself what rule is making her buy, sell, or hold onto a
stock.
One way to remove emotional trading is to buy on the daily charts and sell
on the weekly. The daily action tells you when a stock is breaking out, but
the weekly shows the big picture that is valuable in assessing how a stock is
acting. To capture the significant moves, it’s important not to be shaken out
by the day-to-day market gyrations, instead focusing on the intermediate
trend. A weekly stock chart helps put this into perspective.
Eve feels it’s important when entering a position to write out some hold
rules and have sell points established ahead of time. This takes possible
indecision about when to sell, out of the equation.
Eve also trades in increments to avoid overreacting. She does follow-up
buys on positions that are doing well.
She is currently doing a study of the 1998 market and the characteristics
of the leaders at that time. Eve studies past markets to help her identify
future market leaders. She examines the technical action that all big leaders
have in common. One thing that she has noticed is that many of them have