Before you plow real money into a stock, be sure you know that the broad market is in a confirmed uptrend. Otherwise you'll be swimming upstream, against what could be a strong current.
The M in stands for Market — in other words, what condition is it in
Remember, as many as three out of four stocks follow the market's direction. So you simply can't start buying a stock when the big guys are unloading their portfolios. That's the investing equivalent of swimming upstream.
So how do you know if the market is in an uptrend? Check with IBD Market Pulse, which you'll find every day alongside The Big Picture column.
In an uptrend, your chances of making money by buying sound breakouts by leading new companies are simply greater.
To understand the market's trend, you have to gauge the flow of money. Lots of money coming in will send prices higher; lots of money going out will bring out the bear.
This makes counting distribution days — index declines in higher than that seen in the prior session — a critical study.
Imagine the stock market is a pack animal, and distribution days are heavy crates on the beast's back. Any pack animal can one, or even a few. But if you put one too many such loads on the animal, its back breaks.
Today, when six distribution days in the span of just several weeks weigh on a major index, that seems to trigger the market's breaking point. When the back is broken, an uptrend ends and a correction begins.
So how does a new uptrend begin? Look for a follow-through day, a fat one-day gain in higher volume than that seen in the prior session.
How fat is fat? That varies, but in some cases 1.3% or 1.4% should be enough.
How much higher volume? Just a single share will suffice.
Always remember: Not every follow-through day leads to a successful uptrend, but every successful uptrend is preceded by a follow-through day.
The bottom line is that no matter how much research you devote to individual stocks (and don't stint there, either) you must keep an eye on the broad market.
The Market Pulse showed the most recent uptrend began Nov. 26. Maybe (hopefully) you were watching a bunch of top-rated stocks, just waiting for the go-ahead signal.
The accompanying table shows some of the top names from the IBD 50 that day, where they were then — and where they are now.
It isn't enough to simply spot the right stocks; you have to buy them at the right time. Yes, you can lose money by misplaying a good stock. To become adept at finding the right , go to IBD University on Investors.com. It provides a treasure trove of articles on base patterns and what to look for at the .