Listen to What the Market is Telling You

Believe no one! Listen to what the market is telling you!

The action of the market is the truth everyone else is merely estimating or guessing. Let me let you in on a little secret that the financial news networks will never tell you: No one really knows what the market or stocks will do six months from now -- no one!

On up days, does volume increase or decrease?

On up days, you want volume to increase, and on down days you want volume to decrease. If the index such as the S&P 500 is just drifting sideways, the volume should be low. When the prices move up out of a sideways range, volume should increase. This is a sign of a healthy market. If the market breaks to the downside out of a sideways range on high volume, it could be a danger signal.

If you have several big down days on heavy volume over three to four weeks, the market could be in for trouble over the intermediate term. This is a very important lesson, because when the market is in a downtrend, it will take four out of five stocks with it.

Does the market open lower in the morning then close higher at the end of the day?

Markets that consistently open lower in the morning and close higher at the end of the day confirm a bullish trend. Institutions will usually make major buying and selling decisions in the last hour to hour and a half of the day. If they are buying at the end of the day on a consistent basis, it is positive for the market.

Markets that open higher in the morning and close lower at the end of the day are just the opposite and could be a sign that the market is overvalued or in a negative environment.

How does the market react to the news?

It is very important to watch how the market reacts to news. If the market is in a downtrend or a bear market and it no longer goes down on bad news, then you are possibly nearing a low. It is even more positive if you have plenty of bad news and the market goes up. The opposite is also true. When a market continues to drop when all the news is great, watch out!

Finally, here are key points to keep in mind:

1. You want the volume in general to be higher when the market moves up and lower when it moves down.

2. If the market is moving up on lower than normal volume, be careful.

3. If the market averages are trending sideways, then the volume, in general, should be low.

4. If the market breaks out to the upside, volume should increase.

5. If the market breaks out to the downside and the volume is high, it could be a warning signal.

6. If the market has several sell-offs on high volume during a three-to-four-week period, you should not be buying stocks.

7. If you already own stocks, be prepared to sell if your stocks start to do the exact same thing.

8. High-volume sell-offs, especially several of them in a short time frame, usually mean the end to an uptrend, whether in an index or stock.

9. If the market starts opening higher in the morning and closing lower at night, you should watch your stocks closely and prepare to protect your profits.

10. If the stocks that have been leading the market start to fail or break down, you should prepare for a correction.

11. If the market goes up on bad news, it a positive. If it goes down on good news, it is negative.

If you just follow the above rules it will dramatically improve your trading and investing in mere future.