Developing a investment strategy of your own to supplement using your adviser is wise. The more you use others for advice the more you are dependent upon them. Is the recommendation from their recommended list? How long has it been on that list? Do they have a price objective for the investment? What is your risk reward ratio? These are questions that you need to ask your broker, all are very reasonable.

Consider where we are in the market cycle. Today, we find the market in a very extended position, some would say that we are in a period of euphoria and greed. Is it wise to be starting a new position with a stock purchase? Shouldn’t all of your focus be on protecting your current gains?

Let’s now assume that the time to make a stock purchase is right. Perhaps, we are at the bottom of the investment cycle, when we are at the time of maximum financial opportunity.

Selecting the Best Opportunities

At the bottom of most stock market declines, you will find that the markets tend to move sideways. This is called a trading range. You will find, if your looking a true bottom, that the volume within that trading range will look like this: Expanding volume on up moves and contracting volume on down moves, this is a sign of accumulation. This is a time to be looking for stocks that are being accumulated.

I look for stocks that having broken out of a trading range, by using scanning software. I won’t get into the procedure used, suffice it to say that it can work.

I’m going to use Home Depot as an example of this selection process. Home Depot broke out to a new high in early 2012 after having been in a trading range for over a year and a half.

Let’s say that I made a purchase of Home Depot at 41. What would be my price objective? I use point and figure analysis to give me a price objective.

 

Without getting into the details, my price objective was met at $77. After hitting this price target, Home Depot was stuck in another trading range for about a year. This additional accumulation phase gave a price target of 153.

Shall we take a look at what happened?

It is so important to have a method, a way of approaching the markets and making good investment decisions.

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