Today's Quote: “Success is a journey, not a destination.” Ben Sweetland.

This week we wanted to bring to you a couple of important topics. After the welcoming comments we wanted to address the issue involving stops because it affects so many traders; that was done yesterday. Next we talked some about what the ‘market’ is. Today we want to talk about the role of the market in your trading.

No matter what time frame you are using, you need to think of the world of stocks as being divided into two categories. First are those stocks that are what we call ‘market stocks’. They are the vast majority of stocks; about 80% of all the stocks out there could be called market stocks. Obviously, they make up the ‘market’. They are the QCOMs, KLACs, and BACs of the world. If the market is in a downtrend, don’t plan on making money being long QCOM. There are some exceptions, but the rule for playing market stocks is that you must include an analysis of the market in your buy and sell decisions. The biggest downfall with this group of stocks is just that; we must include the market in our analysis, and there is nothing more slippery than trying to determine where the market is going long term.

The other group of stocks you can think of as stocks ‘on their own page. ’ These stocks clearly do NOT follow the market. They do not follow the market for one of the following reasons:

1. These stocks may be ‘on their own’ because they are part of a sector that does NOT run with the market. Oil stocks, gold stocks, defensive stocks often run by design exactly opposite the market. Sometimes they are not opposite, but just on their own. Some other sectors will from time to time develop their own pattern that is somewhat different than the market.

2. These stocks may be ‘on their own’ because they have simply developed their own pattern. They may be in a ‘market sector’ but over a period of time they have simply found a long term buyer or seller that has changed the chart for this stock. They are detected by having a long term chart pattern that is clearly different than that of the market.

3. These stocks may be ‘on their own’ because a ‘shock’ factor has occurred. Either a large professional gap or a high volume gap tactic (we will discuss in a future session), or a climactic buy/sell set-up occurred one day that has ‘changed the chart’ and has made this stock go off on its own.

Which is better? That is easy. When the market is in a strong uptrend or downtrend, be with the market stocks. When the market is sideways or choppy, as it is the vast MAJORITY of the time (you need to understand that), then go with stocks on their own page.