Today’s Trading Lesson From TradingMarkets

To gain maximum
profits from the markets, one of the most important tasks a trader
needs to do is watch and listen to what the market is doing on a daily basis.
What is the upside leadership doing and what are the upside leading groups and
sub-groups? What is the downside leadership and what are the lagging groups and
sub-groups doing? By watching and striving to gain understanding into what
leading and lagging sub-groups are doing each day, a trader gains invaluable
information about the strength and weakness of the market and about which stocks
should be bought or sold short.

Each day, traders should carefully study
the following TradingMarkets.com charts:

New High RS Group Concentration, the

New High RS Sub-group Concentration, the

New Low RS Group Concentration, and the

New Low RS Sub-group Concentration. Pay particular attention to the leading
sub-groups that appear day after day on these charts. These are the sub-groups
that you will want to be exposed to on the long and short side.

Investors shouldn’t forget that one of
the criteria of our upfuel and downfuel is that the stock is in a leading group
or sub-group for longs and a lagging group or sub-group for shorts. Keep a
constantly updated list of the top five groups and subgroups that appear on
these lists on a daily basis, and on a day-after-day basis for the last several
weeks.

When a stock breaks out to the upside and
meets all of our other upfuel criteria — make sure it is in a group and
sub-group that also are among the leaders of the last few weeks. Get out your
Investor’s Business Daily and go to the “Industry Groups” page (usually
around page A25 and just following the critical “General Market & Sectors”
page). Verify for sure that the stock in question is in a group that is in the
top 40 in the daily industry group ranking table. You want a stock that is among
the top 10 in both the daily Group and Sub-group concentration list and your
list for the last two-three weeks and is either also in a group in the top forty
on the IBD industry group ranking table, or has been moving up to very close to
being in the top 40 from a very low level over the last two weeks and has been
emboldened for several of the last seven trading days. This will force you to
focus only on leading sub-groups and groups for your longs.

When a stock breaks down to the downside
and meets all of our other downfuel criteria — make sure it is in a group and
sub-group that also are among the laggards (worst performers) of the last few
weeks. Get out your Investor’s Business Daily and go to the “Industry
Groups” page (usually around page A25 and just following the critical “General
Market & Sectors” page). Verify for sure that the stock in question is in a
group that is in the bottom forty in the daily industry group ranking table. You
want a stock that is among the top 10 in both the daily Group and Sub-group
concentration new low list and your list for the last two-three weeks and is
either also in a group in the bottom 40 on the IBD industry group ranking table,
or has been moving down to very close to being in the bottom 40 from a very low
level over the last two weeks. This will force you to focus only on the weakest
sub-groups and groups for your shorts.

An even greater edge can be obtained if
you subscribe to some sort of service like WONDA or AIQ, where you can actually
chart the Industry Groups (or a surrogate of them). When you find an Industry
Group that meets the above criteria and also has broken out of its own chart
consolidation to the upside or downside, then you really know you’ve got a very
good likelihood of a profitable situation — and you’ll want to get a good
representative of this group including in your portfolio.

The more you pay attention to what the
leadership and laggards are doing on an individual stock and a group/sub-group
basis daily, the better able you will be to exploit and anticipate the biggest
moves in individual stocks and groups. So after you’ve begun to master finding
stocks that break out properly with upfuel and downfuel, focus on leadership
laggardship to improve your trading that much more.