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Technical analysis: Breakouts, A Key To Materialize Gains

Even when the market is in a  Confirmed Uptrend , it is important to initiate your positions at the proper time in stock. A breakout from a base pattern is considered an ideal time to buy a stock. Whe...
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Common Investing Mistakes

“You can’t go by opinions or how you feel. You need to have and follow sound, proven rules” - William J. O’Neil, MarketSmith Founder   Rules are meant to keep you out of trouble, not only in life but ...
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How To Trade Stocks: What Is A Base? And How To Use Stock Charts To Win Big

If you're new to investing and struggling with the features, screens, and unique charts of MarketSmith India, you may have wondered what a "base" is. You may have wondered why MarketSmith India uses t...
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Share Market Tips: Not Every Stock Market Follow-through Works

In the stock market, nothing works 100% of the time. That's why you have to be prepared to deal with failed signals. In  CAN SLIM , the market itself – the M in CAN SLIM – is the most important factor...
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Share market basics: Overhead Supply Can Repulse A Stock’s Climb

“Just remember buying at new highs is buying into emerging strength.” – William J. O’Neil Overhead supply, also known as percent off high, represents price levels at which a stock’s recovery is impede...
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How to Read the Market Direction?

“You are better off staying on the sidelines in cash until a new bull market really starts,” - William J. O’Neil Investors spend a disproportionate amount of time buying a stock, as compared to sellin...
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Share Market Basics: Investing Mistakes to Avoid in a Down Market

You found a company with an amazing product. Strong demand was fuelling big earnings and sales growth. Mutual fund sponsorship was top-notch, and the stock was in a bullish technical pattern. But the ...
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Still the No. 1 Stock Market Tip: Always Cut Your Losses Short

Currently, the market is in a Downtrend, as Nifty is trading near its five-month low. All the sectoral indices are trading below their 50-DMA , indicating broad-based weakness. In such a scenario, it ...
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When To Buy Growth Stocks: How Pyramiding Up Can Be As Easy As A Cup Of Coffee

When to buy growth stocks the right way? Think about the moment you drink a cup of freshly brewed hot coffee. You can avoid getting burned badly by taking sips instead of just gulping it down. Take a ...
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What’s A Follow-Through Day?

It is difficult to identify the start of a major stock market uptrend if you are relying on headlines and news. By the time, reporters figure out what’s going on in the stock market, the best part is ...
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Why New Highs In Low Volume Can Halt A Big Run

A great company is like a high-performance Porsche. Volume is the stock's fuel. If you desire to master when to sell stocks correctly, remember this analogy. You can go on all day about the company's ...
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Bull and Bear Markets and How to Tackle Them? - MarketSmith India

Bull and Bear Markets and How to Tackle Them

We are familiar with basic terminologies such as the bull market, bear market, and correction. In simple terms, a “bull market” is when the market moves higher and a “bear market” is when the market moves lower. However, one needs to understand that a new follow-through day and short-term uptrend do not necessarily signal a bull market. Similarly, short-term downtrend does not necessarily indicate a new bear market.

Bear market versus interim correction

Interim corrections can occur even within an upward trending bull market. This is when the major indices cool off a bit. The indices will consolidate for a few weeks or months, before resuming their up move. This phase of consolidation is what we call “interim correction.” The depths of these short-term corrections vary; it can be about 5%, 10%, or 15%. These interim corrections will be mild, not enough to change the underlying bull market.

As a rule, a decline of less than 20% indicates an interim correction. However, if the indices fall 20% or more, then it is a bear market. In the bear market, stock prices decline and investor confidence is low. Although the length of the correction varies, bear markets typically last for a few months.

Interim corrections usually last from a few weeks to a few months. Bear markets are generally triggered by underlying weakness in the economic conditions or by a global or country-specific slowdown. The market, however, may or may not recover quickly from the bear market and cover up its losses. If it doesn’t, then it becomes what is called a prolonged bear market. In a prolonged bear market, which may last for more than 2–3 years, general market sentiment is of despondency with only small intervals of upward rallies.

How CANSLIM can help investors through market turns

CANSLIM is a systematic approach, which can tell you when to be aggressive in a market where risks are low and rewards are high, as well as warn you to cut your position size when the risk-reward ratio contorts. When the market is in a bull run, the market status reflected by the CANSLIM methodology would be a “Confirmed Uptrend”.

Further “follow-through days” during a Confirmed Uptrend signify the strength of the market and will be an opportunity to further increase your exposure and multiply your gains. However, more importantly, when the market strength fizzles out, the status tracked according to CANSLIM (using distribution days) will also start degrading and will turn into a “Downtrend.” This will be a signal for investors to reduce, and eventually call-off their bets, thus protecting their hard-earned capital.

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

 

To Read Detailed Reports including Stock Recommendations, Idea Lists, Evaluate Stocks etc. subscribe to:  MarketSmith India.

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