Securities Research Services
Long Term Strategy Continued...
To your right is a more detailed view of Stock B, RIMM. Notice how this stock is following a strong trendline that can be objectively measured by anyone with the capacity to connect two or more points in a line. Most importantly is the fact that this stock allows us to answer the three most fundamental questions any investor desperately needs to know in order to achieve lasting success.
More on Trendlines...One of the basic tenets put forth by Charles Dow in the Dow Theory is that security prices do trend. Stock trends are often measured and identified by "stock trend lines." A stock trend line is a sloping line that is drawn between two or more prominent points on a stock chart. Rising trends are defined by a trend line that is drawn between two or more troughs (low points) to identify price support. Falling trend-s are defined by trend lines that are drawn between two or more peaks (high points) to identify price resistance. A stock trend line is a sloping line drawn between two prominent points on a stock chart. Rising trend lines are usually drawn between two troughs (low points) to illustrate price support while falling trend lines are usually drawn between two peaks (high points) to illustrate upside price resistance. The consensus is that once a stock trend has been formed (two or more peaks/troughs have touched the trend line and reversed direction) it will remain intact until broken. One benefit of stock trend lines is they can help distinguish intuitive decisions ("I think it's time to sell...") from analytical decisions ("I will hold until the current rising trend line is broken"). Another benefit of trend lines is that they almost always keep you on the "right" side of the market. When using trend lines, it's difficult to hold a security for very long when prices fall just as it's hard to be short when prices rise—either way the trend line will be broken.
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Where to buy
Fundamental to buying stocks is the importance of only buying where there is chart support. From the chart above it is easy to see that support is established at the blue up sloping trendline. The question of where to buy can then be established objectively.
Where to exit
Again, fundamental to success in the market is to always be on the side of the trend. When the stock trend changes it is important to either exit or change positions to trade with the new trend. It can be objectively established from RIMM's chart when the trend has been breached. One only need to watch for the price to close below the blue up sloping line.
When do you know if something has gone wrong
The answer to this question is the same as the last answer. When the price has closed below the blue up sloping stock trend line it is time to get out and move on to the next stock investment.
