Know why you buy, MAY - emailed to subscribers May 21st, 2002

Always know why you are buying.

You may have found already, it is very easy to buy stocks, and to keep buying till you've no money left in the kitty. Much harder to sell.

I can illustrate this with the MAY chart may.gif

Do note please though, these emails are not recommendations to buy or sell. They are meant to follow on from Gann classes, to teach you so you can make your own decisions. You know that already I'm sure, but worth repeating.

If you are trading, never buy a stock below the moving averages. Indeed you could be looking to short any break into new lows. Stocks make new lows because someone knows there is further bad news on the way. Mostly, stocks fall faster than they rise.

If you are buying to invest, say with a longer-term horizon, (2 years or more) the same rules about moving averages should be applied. But on occasions, stocks do become way oversold; as MAY looks now. So looking two years ahead, now could be a buying time, if you wanted to hold that long. Gann can be helpful here, by measuring the repeat range on the weekly for a possible low price and change of trend.

A third option, is to do what I do mostly, as per the longer-term portfolio, and be patient enough to wait for the stock to form an accumulation zone (it may not of course), then buy on the breakout. Gann identified this first. This helps avoid having your limited funds in stocks going sideways, lowering overall potential performance. There are always stocks in the market readying themselves for a breakout.

May - PDF

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