Mike's 10 Must Follow Rules for Making Consistent Profits in the Stock Market

Rule #10: Timing the Market

The real question is, "Can you time the market?" This is another way of asking, "Can you pick a stock's market bottom and/or market top?"

The answer is, "Not consistently!"

But... you CAN increase your odds of getting in near the bottom by using my Rule number 3. AND, you can exit a stock much nearer the top by following my Rule number 10.

A LOT more profit can be captured if you know just when to start getting very aggressive with a stop loss setting. For that, I use the technical charts of the stock, the sector and the industry (see the charts, below).

The lower left chart is the technical chart of the Sector (Financial) of the stock, AG Edwards. The lower right chart is the technical chart of the stock's Industry (Investment Brokerage - National). The top chart is the technical chart of the stock (AGE: A. G. Edwards Inc.)

You will note by looking at Circle-C in the stock chart that the stock price (green line) dropped significantly in price in about the 3rd week of March 2005. One might logically assume that the best time to have sold a position in AGE was right at that high point.

Now, take a look at the Sector chart... You will note by looking at Circle-A, the chart gave a Sell Signal for the Sector right at the beginning of the year; just about 2 months before AGE hit its high.

Look at the Industry chart... Note that at Circle-B, the chart gave a Sell Signal a mere 1-week before AGE hit its high.

And... finally, look back at Circle-C and note that the stock itself gave a Sell Signal approximately 2 weeks after its high.

I see these kind of data every day. We post these charts for our subscribers to view in our Stock Ratings for every one of the 4,000+ stocks that we track. We don't always get signals this clear, but it is not uncommon to find leading indicators of market tops by studying the Sector and Industry charts.

In this example, the appropriate action would be to start looking at becoming more aggressive with a stop loss setting in January of '05 as the Sector chart suggested. And then to get very aggressive with the stop loss after the Industry chart said to sell.

The logic behind this approach is this: If you are selecting best-of-breed stocks according to the 1st 9 Rules, then it is likely your stock will be the last to succumb to a down-turn in its industry. This gives you time to time the market for that stock and exit very near the top; maximizing your gain.