Practical Stock Investing
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What causes a stock’s price to rise and fall?
If you knew the real answer to this question you could predict future price action, and make a fortune in the stock market. And certainly, many theories have been offered. Some people believe it’s the quality of the product that a company produces, the intelligence of company leaders, and public demand for the product, the general economy, and foreign competition.
I’m not one to believe in conspiracies. However, when it comes to stock and the companies they represent, a conspiracy theory explains why prices rise and fall very accurately.
Prices don’t fluctuate based on the merit of a company’s products and services. The market is manipulated by those inside the companies who buy and sell stocks for their own advantage, at the expense of the inexperienced and unaware trading public. The insiders plan their buying and selling according to certain patterns that are designed to fool the uninformed. The unwary public predictably misinterprets these patterns, and is thus influenced to buy when prices are inflated, and sell at a loss.
Ted Warren, the master at understanding this conspiracy concept said:
"In order to understand the technical condition or phase that a stock is in, you must first learn to believe that every stock is under the guidance of ‘sponsors’ who will manipulate its price movements in a way that will influence the unstable, emotional public into buying during the tops, and selling out at a loss."
Who are these insiders? They might work on the exchange floors and in brokerage houses, or sit in the boardrooms of corporations. It doesn’t matter. Assuming their existence, and acting accordingly, is the basis of the conspiracy trading approach. That approach can make you a fortune! If you want to do the same, all you have to do is learn how to anticipate the actions of these manipulators, and then use that information to make your own future trading decisions. There is a perfect way to do this, for while the manipulators try to act in secret, every move they make is recorded for all to see. Where? In the patterns and clues they leave on the long-range price charts of any stock. These charts show the history of a stock’s manipulation, and provide clues to its future movement. Once you learn how to read them, the charts give you clear indications of when to buy, and when to sell.
Reading the Stock Charts
In order to make money on any stock, you want to get in on the ground floor, while the price is still low. But you don’t want to buy too early, or you may be left holding the stock for years while it’s still under collection. Let your charts tell you when to buy. Learn first to recognize the formations that tell you a stock is in its low price range, and then the specific signal that tells you it’s time to buy.
These are the main chart formations to be looking for:
Foundations
Foundations are formed during periods of collection, when the insiders are buying up stock at bargain prices. Long periods of collection produce very good foundations when the stock’s price and volume is low for two to three years or more. Most people avoid a stock, or sell whatever shares they may still be holding during these periods because they’re afraid its price will drop even further. They end up selling at a loss. Stocks that have been in collection for a long time shouldn’t put you off. You should know that the best time to buy a stock is at the end of collection period, when the chart will show a time to buy. A collection period should be of at least two (the longer the better) years’ duration to present a good buying opportunity.
The sounder the collection period the better chance of a large rise. Sound collection periods are longer; have low volume, and weaker rallies. Weak rallies encourage the public to sell after the discouraging drop that follows. They fool investors into believing that this stock can’t possibly go any higher, when in fact it will.
The signal to buy comes when prices rise above a false ceiling on the chart. They rise above the ceiling they seemed unable to rise above until now. After the initial rise, be prepared for a possible price drop before the rise continues. This sudden drop discourages average investors out of the last shares they may still be holding.
Purchasing stocks after a foundation period
Declines
Buying during a decline is not a good idea. However, it can be safe to buy after a decline has been completed. Look for a gradual decline line of at least two years’ duration that began after a stock had a very large drop. Draw the decline line from the end of the drop. Then watch for low volume to set in. Your signal to purchase is a break above the decline line. At that point the stock can be bought with confidence. Once the trend line is broken, most of the stock has already been purchased, eliminating much of the waiting time before the rise. These types of declines generally don’t result in a rise of several hundred percent that can be seen from a foundation, but almost certainly will have 100-200% gain.
Purchasing stocks after a decline
Triangles
Triangles occur when incline lines and decline lines converge on a price chart. You can expect a large rise from this kind of pattern, especially a long-term triangle usually with a final price drop below the triangle’s incline line to scare the public into selling out. A price drop after the price has rallied to higher levels also turns people into willing sellers.
The rise is often slow at first, which is taken as another indicator of weakness to most investors. They sell off what they have left because the stock seems like it will never gain any upward momentum. Just before the triangle’s lines narrow, the price fluctuations quiet down, further discouraging the public from buying. The breakout above the decline line is a perfect time to buy. An imperfect or short triangle can also be a profitable formation to buy on.
Purchasing stocks on a triangle
Selling your stock at a profit
Knowing when to take profits is one of the most difficult aspects of trading. Selling too soon can mean lower profits, but waiting too long can mean a loss of everything you’ve gained. Let the chart give you the signal to sell. Once it comes, believe it and act on it.
Just as breaks in trend lines can give you the signal to buy, they can also give you the signal to sell. But you must pay close attention to catch these sell signals. Prices generally fall faster than they rise, so a decision to sell must be made after price actions lasting only a few months, or even weeks, while decisions to buy can come after price actions lasting years. This means you will sometimes sell too soon while learning how to spot those selling cues, but usually with a profit. Remember, selling too soon is a mistake you MUST make at times to protect yourself against far worse mistakes, like holding too long.
Several requirements should be met before selling a stock you’re holding. The first and most significant sell signal is a broken incline line of 45 degrees (or steeper). But even when you can spot this on a chart quite easily, there are other factors to consider. Has the stock had a fast rise of 100% to 200%? If so you may want to consider selling and taking a profit. If the rise is slow and the volume low after a break in the incline line, the public is not buying yet. This is your signal to hold off on selling.
Another wait-to-sell signal is when the incline line is broken within just the first few months of the rise. Manipulators slowly buy up a stock for years, so they want to make it reach its highest price before selling, making sure they get what they waited so long for. To do this they must prevent the public from buying too soon. If the public does get in too soon, the manipulators will have no one to sell stock to at the higher price ranges. By simply slowing down his or her own purchases or not buying at all, the stock’s price will stop moving up and begin to fall. This discourages the public into selling and prevents new purchases. Eventually the rise will continue.
By studying the charts, you’ll develop an understanding for trend lines and become better at deciphering the sell signals.
Selling stocks
