how to make money in stocks and how to get rich_117

Many fundamental security analysts think technical analysis means buying

stocks with the strongest relative strength.

You do not buy stocks that show the highest relative price strength on

stronger than the general market just as they are beginning to

emerge from a sound base-building period. The time to begin selling is

when the stock advances in price rapidly, is extended materialy from its

base, and is showing extremely high relative strength.

Analysts have a great deal to leam if they believe all diat technical research

amounts to is the buying of high relative strength momentum stocks.

A critically important concept to learn in analyzing price movements is

the principle of overhead suply. It is realy quite simple. If a stock

advances from $25 to $40, then declines back to $30, most of the people

who bought late in the uper $30s and at 40 wil have a los stock

unless they were quick to sell and cut their loss (which most people don't

do). Therefore, if the stock later increases in price back to high $30s

or $40 area, all the investors that had losses can now get out even.

Humanature is prety much the same most of time. So it normal

that a number of these people will sell when they see a chance to

get their money back after having been down a significant amount.

Good chartists (a typically tiny group of investors) know how to recognize

the price areas that represent heavy overhead supply. They will

never make the fatal mistake of buying a stock that has a large recent

amount of overhead supply. This is one type of serious mistake many

inexperienced fundamental analysts tend to make.

On the other hand, if a stock is able to fight its

way through al overhead supply, it may be safer to buy even though the price is a little

higher because the stock proved itself to have sufficient demand to

absorb the concentrated supply zone. Of course, a stock that has just

broken out into new high ground for the firstime has noverhead

supply to contend with, which adds to its appeal.