Click here to Download How to Make Money in Stocks PDF Book by William O’Neil having PDF Size11 MB and No of Pages556.
I have already completed such a comprehensive study. In our historical analysis, we selected the greatest winning stocks in the stock market each year (in terms of percentage increase for the year), spanning the past 125 years. Other key factors you’ll discover include what the quarterly earnings of these companies were at the time.
How to Make Money in Stocks PDF Book by William O’Neil
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What the annual earnings histories of these organizations had been in the prior three years, what amount of trading volume was present, what degree of relative strength there was in the prices of the stocks before their enormous success, and how many shares of common stock were outstanding in the capitalization of each company.
You’ll also learn many of the greatest winners had significant new products or new management, and many were tied to strong industry group moves caused by important changes occurring in an entire industry. It’s easy to conduct this type of practical, commonsense analysis of all past successful leaders.
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Fortunes are made every year by those who take the time to learn to interpret charts properly. Professionals who don’t make use of charts are confessing their ignorance of highly valuable measurement and timing mechanisms. To further emphasize this point: I have seen many high-level investment professionals ultimately lose their jobs as a result of weak performance.
When this happens, their poor records are often a direct result of not knowing very much about market action and chart reading. Universities that teach finance or investment courses and dismiss charts as irrelevant or unimportant are demonstrating their complete lack of knowledge and understanding of how the market really works and how the best professionals operate.
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As an individual investor, you too need to study and benefit from stock charts. It’s not enough to buy a stock simply because it has good fundamental characteristics, like strong earnings and sales. In fact, no Investor’s Business Daily® reader should ever buy a stock based solely on IBD’s proprietary SmartSelect® Ratings.
A stock’s chart must always be checked to determine whether the stock is in a proper position to buy, or whether it is the stock of a sound, leading company but is too far extended in price above a solid basing area and thus should temporarily be avoided. When a stock forms a proper cup-with-handle chart pattern and then charges through an upside buy point.
Which Jesse Livermore referred to as the “pivot point” or “line of least resistance,” the day’s volume should increase at least 40% to 50% above normal. During major breakouts, it’s not uncommon for new market leaders to show volume spikes 200%, 500%, or 1,000% greater than the average daily volume. How to Make Money in Stocks PDF Book
In almost all cases, it’s professional institutional buying that causes the big, above-average volume increases in the better-priced, betterquality growth-oriented stocks at pivot breakouts. A full 95 percent of the general public is usually afraid to buy at such points because it’s scary and it seems risky and rather absurd to buy stocks at their highest prices.
Your objective isn’t to buy at the cheapest price or near the low, but to begin buying at exactly the right time, when your chances for success are greatest. This means that you have to learn to wait for a stock to move up and trade at your buy point before you make an initial commitment.
If you work and cannot watch the market constantly, small quote devices or quotes available on cell phones and Web sites will help you stay on top of potential breakout points. A “high, tight flag” price pattern is rare, occurring in no more than a few stocks during a bull market. It begins with the stock moving generally 100% to 120% in a very short period of time four to eight weeks. How to Make Money in Stocks PDF Book
It then corrects sideways no more than 10% to 25%, usually in three, four, or five weeks. This is the strongest of patterns, but it’s also very risky and difficult to interpret correctly. Many stocks can skyrocket 200% or more off this formation. (See the charts for Bethlehem Steel, May 1915; American Chain & Cable, October 1935; E. L. Bruce, June 1958; Zenith, October 1958; Universal Controls, November 1958.
Certain-teed, January 1961; Syntex, July 1963; Rollins, July 1964; Simmonds Precision, November 1965; Accustaff, January 1995; Emulex, October 1999; JDS Uniphase, October 1999; Qualcomm, December 1999; Taser International, November 2003; and Google, September 2004. Each earlier pattern serves as a precedent for each later pattern, so study them carefully.
When the bearish phase in the overall market ends, as it always does at some point, this stock is apt to be one of the first to emerge at a new high en route to a huge gain. It’s like a spring that is being held down by the pressure of a heavy object. Once the object (in this case, a bear market) is removed, the spring is free to do what it wanted to do all along. How to Make Money in Stocks PDF Book
This is another example of why it’s foolhardy to get upset and emotional with the market or lose your confidence. The next big race could be just a few months away. Two of our institutional services firm’s best ideas in 1978—M/A-Com and Boeing—showed base-on-top-of-a-base patterns. One advanced 180%, the other 950%. Ascend Communications and Oracle were other examples of a base on top of a base.
After breaking out at the bear market bottom of December 1994, Ascend bolted almost 1,500% in 17 months. Oracle repeated the same base-onbase pattern in October 1999 and zoomed nearly 300%. Coming out of the Depression in 1934, Coca-Cola did the same thing. The aforementioned Houston Oil & Minerals is an even more dramatic example of the handle correction from point F to point G being a wide-and-loose pattern that later tightened up into a constructive price formation (see the accompanying chart).
A to B to C was extremely wide, loose, and erratic (the percent decline was too great). B to C was straight up from the bottom without any pullback in price. Points C and D were false attempts to break out of a faulty price pattern, and so was point H, which tried to break out of a wide-and-loose cup with handle. Afterward, a tight nine-week base formed from points H to I to J. How to Make Money in Stocks PDF Book Download
Note the extreme volume dry-up along the December 1975 lows.) An alert stockbroker in Hartford, Connecticut, called this structure to my attention. However, I’d been so conditioned by the two prior years of poor price patterns and less-than-desirable earnings that my mind was slow to change when the stock suddenly altered its behavior in only nine weeks.
I was probably also intimidated by the tremendous price increase that had occurred in Houston Oil in the earlier 1973 bull market. This proves that opinions and feelings are frequently wrong, but markets rarely are. Alert investors should have a way of keeping track of all the new stock issues that have emerged over the last 10 years.
This is important because some of these newer and younger companies will be among the most stunning performers of the next year or two. Most of these issues trade on the Nasdaq market. Some new issues move up a small amount and then retreat to new price lows during a bear market, making a poor initial impression. How to Make Money in Stocks PDF Book Download
But when the next bull market begins, a few of these forgotten newcomers will sneak back up unnoticed, form base patterns, and suddenly take off and double or triple in price if they have earnings and sales that are good and improving. Most investors miss these outstanding price moves because they occur in new names that are largely unknown to most people.
A charting service can help you spot these unfamiliar, newer companies, but make sure that your service follows a large number of stocks (not just one or two thousand). Successful, young growth stocks tend to enjoy their fastest earnings growth between their fifth and tenth years in business, so keep an eye on them during their early growth periods.
To summarize, improve your stock selection and overall portfolio performance by learning to read and use charts. They provide a gold mine of information. It will take some time and study on your part to become good at this, but interpreting charts is easier than you think. In a few cases, you may have to allow 13 weeks after your first purchase before you conclude that a stock that hasn’t moved is a dull, faulty selection. How to Make Money in Stocks PDF Book Free
This, of course, applies only if the stock did not reach your defensive, losscutting sell price first. In a fast-paced market, like the one in 1999, tech stocks that didn’t move after several weeks while the general market was rallying could have been sold earlier, and the money moved into other stocks that were breaking out of sound bases with top fundamentals.
When your hard-earned money is on the line, it’s more important than ever to pay attention to the general market and check IBD’s “The Big Picture” column, which analyzes the market averages. In both the 2000 top and the top in the 2007–2008 market, “The Big Picture” column and our sell rules got many subscribers out of the market and helped them dodge devastating declines.
If you make new purchases when the market averages are under distribution, topping, and starting to reverse direction, you’ll have trouble holding the stocks you’ve bought. (Most breakouts will fail, and most stocks will go down, so stay in phase with the general market. Don’t argue with a declining market. How to Make Money in Stocks PDF Book Free
After a new purchase, draw a defensive sell line in red on a daily or weekly graph at the precise price level at which you will sell and cut your loss (8% or less below your buy point). In the first one to two years of a new bull market, you may want to give stocks this much room on the downside and hold them until the price touches the sell line before selling. In some instances, the sell line may be raised but kept bel.
The majority of the leading stocks are usually in leading industries. Studies show that 37% of a stock’s price movement is directly tied to the performance of the industry group the stock is in. Another 12% is due to strength in its overall sector. Therefore, roughly half of a stock’s move is driven by the strength of its respective group.
Because specific industry groups lead each market cycle, you can see how worthwhile it is to consider a stock’s industry before making a purchase. For the purposes of this discussion, there are three terms we will use: sector, industry group, and subgroup. A sector is a broad grouping of companies and industries. How to Make Money in Stocks PDF Book Free
These include, for example, basic industries (or “cyclicals”), consumer goods and services, transportation, finance, and high technology. An industry group is a smaller, more specific grouping of companies; there normally are several industry groups within a sector. A subgroup is even more specific, dividing the industry group into several very precise subcategories.
For example, if we were to look at Viacom, it could be described as follows: Sector: Leisure and Entertainment Industry; Group: Media; and Subgroup: Radio/TV. For clarity and ease of use, industry group and subgroup names are generally combined, with the result simply being called “industry groups.”
Groups that emerge as leaders in a new bull market cycle can be found by observing unusual strength in one or two Nasdaq stocks and relating that strength to similar power in a listed stock in the same group. Initial strength in only one listed stock is not sufficient to attract attention to a category, but confirmation by one or two kindred Nasdaq issues can quickly steer you to a possible industry recovery. How to Make Money in Stocks PDF Book Free
Grouping and tracking stocks by industry group can also help you get out of weakening investments faster. If, after a successful run, one or two important stocks in a group break seriously, the weakness may sooner or later “wash over” into the remaining stocks in that field. For example, in February 1973, weakness in some key building stocks suggested that even stalwarts such as Kaufman & Broad and MGIC were vulnerable, despite the fact that they were holding up well.
At the time, fundamental research firms were in unanimous agreement on MGIC. They were sure that the mortgage insurer had earnings gains of 50% locked in for the next two years, and that the company would continue on its merry course, unaffected by the building cycle. The fundamental stock analysts were wrong; MGIC later collapsed along with the rest of the deteriorating group.