I don't disagree, but "Cup with Handle" like all pattern recognition is subjective. The pattern can be quantified and made objective so that it can be programmed, but then you easily lose half or more of the prospective companies which might be forming a "Cup with Handle" due to not matching the specific criteria. There is no way I am manually scanning hundreds of charts to look for a subjective pattern.
Summary #6: You should look for stocks with institutional sponsorship. Rather than purchase individual shares, some investors put their money into funds, which is a whole assortment of different stocks bundled into one investment. In the U.S.A. they're called mutual funds and are provided by big institutions. They are run by financial experts who hand-pick which stocks to include. But as an individual stock investor, it's worth checking out which stocks these experts have picked. In other words, you should look for stocks with institutional sponsorship. These big institutions make up the bulk of stock-buying in the world. Because of this, they drive the market, pushing stock prices higher or lower. With this in mind, it's worth paying particular attention to what they do. If you own shares that the big institutions are buying, then you will see the stocks rise in your own portfolio. Specifically, you should pay attention to what the best performing funds are doing. These are the funds that generate the biggest annual returns and are run by the most insightful investors. To find out about the best performing funds, you can use resources like Investor's Business Daily and Morningstar.com. Morningstar also lists these mutual funds' top holdings. Institutional investing also matters in general, whether or not it's from top-performing funds. If many funds are buying into a stock, it will rise in value. Along with analyzing the activity of these institutions, it's worth knowing about their stock-picking philosophy. You can learn from the best by looking at their prospectus, which you can either download or request directly from the firm. The prospectus will tell you which technique each fund employs, along with the kinds of stocks they've purchased. However, it's worth noting that some stocks can become "over-owned" by big institutions. Some stocks are just bought automatically, even when they might not be in great health. Take Xerox. It was a favorite of institutions in the 1970s, with an amazing track record. But some astute analysts noticed that all was not well at the company. Very soon, the stock headed down. So, though you should try to learn from the best, you should ALSO do your own homework. Nothing beats your own due diligence!
Summary #7: You should keep a close eye on the general market direction. Individual stocks only matter up to a point. If the market goes down, you'll lose money. Just think back to the crash of 2008. For the most part, it didn't matter how good your stock-picking was. If you didn't sell in time, you lost money. The truth is, three out of four stocks will lose value if the general market is heading downward. In my mind, this kind of reinforces a recent decision I made (as recorded in another thread) to only purchase stocks as the major U.S. indices are coming out of pullbacks... To judge the general mood of the market, you should get an overview of the big stock indices—such as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite—to check whether there has been significant buying or selling going on. Also, in a resource like Investor's Business Daily, you'll be able to see something called an Accumulation/Distribution Rating for a given index, like the Nasdaq. It tells you if investors are buying or selling in a particular index. That will tell you if they have confidence in the market or if they fear a dip. It's important to keep a close eye on these indices, as a change can happen over just a few weeks. If you fail to pay attention, you could be left standing open-mouthed as a big crash wipes out your returns. For instance, if you notice that stocks keep opening high and closing low, the market could be entering a bear market, where prices fall. Conversely, if you notice that stocks open weak and close strongly, it could be the first sign of a bull market. Without daily scrutiny of the general market though, you'd never know this was happening. What you shouldn't do is listen to too many financial analysts or investors' newsletters on the state of the market. For the most part, these are expensive distractions. "Experts" whose opinions contradict one another can just confuse, rather than clarify, things for you. The best strategy is to observe the market itself. Think of it as a little like observing wildlife. If you were studying tigers, the best resource would be the tigers themselves. You could read all of the literature on tigers in the world, but nothing would be more instructive than watching the animals in their natural habitat. The same is true of that other wild beast, the stock market! Accordingly, the last bit of actionable advice is to "cut your losses!" In other words, you should not just know when to get into a stock, but also when to get out—that is, if you don't want to lose lots of money. As a rule, it's a good idea to sell a stock when it plunges to eight percent below your buy-in price. That way, you can keep your losses small as you chase big wins.
I read the book way back when, some of his rules always seemed too touchy-feely. Like "innovative companies", very subjective. Is there any funds or ETFs that try and utilize his principles?
Thanks! So CANGX started trading on September 26, 2005. Since then, it is up a total of 56.84%. Also since then, SPY is up a total of 349.51%. That is excluding dividends, but that won't make a difference big enough to dent. Talk about a freaking wipe out... this tells me all I need to know about the CANSLIM method lol....