Many stocks are very overvalued right now with the rise that has taken place, so we must have even more caution than normal. We must not be fearful that we are "missing" another upsurge, or "losing profits" when not trading.
This weak link is what tricks most investors into failure.
When I do "due diligence" on a stock I am looking for TWO things first: 1. Am I looking to buy a break out stock? 2. Am I looking to buy a value stock?
If looking for a breakout stock I am student of William ONeil's CAN SLIM philosophy, which is listed and detailed in our book recommendation How to Make Money in the Stock Market (third edition)
CANSLIM has much of Wyckoff work in it, as is much of Mr. O'Neil's break out thinking which is the "springboard" charting taught in our other book recommendation on Wyckoff, whom we were taught by, titled
Charting the Stock Market: The Wyckoff Method
To learn the overvaluing of the market, or how the Dow itself works, I highly recommend The Dow Theory Today by Richard Russell. The author summarizes Dow Theory beautifully and it's an excellent adjunct to the Dow projections we provide on the website each week.
Perspectives on how a stock is doing are critical. The same thing can be viewed several different ways, changing your variables.
Here's an example of one of our holdings. This is Prestige Brand Holdings, which we just bought.
1. A classic candlestick chart.
2. A Classic 3:1 Pnf Chart
3. A converted .50:1 Pnf Chart
These charts were taken at close of market on 9/25. If learning charting it would be valuable for you to do a "re-chart" of each of these three techniques. I find the .50/1 ratio PNF fine tunes a standard 3:1 Pnf chart, and see the candlestick chart as too much information, so much that reviewing it "makes me nervous for what I don't know"
