Riding The Popularity Cycle

Catching a stock as it becomes more and more popular is similar to catching the right wave when surfing – but it's equally satisfying. The essence in both cases is identifying well in advance which waves are worth riding on.

How can you pick potential winners from an ocean of mediocre stocks? One helpful tool is to watch for upgrades by investment companies like JP Morgan, Merrill Lynch etc. There's a reason why these companies are so profitable. These companies do not just buy equity. They scrutinize stocks, companies and sectors all day long. They know the in's and out's of the market and are very aware of investor psychology.

Another way could be looking at recent upgrades awarded by investment newsletters. That's because the editors of these newsletters have proven to also be incredibly sensitive to toe shifts in investor psychology about particular market sectors and specific stocks.

So it's worth paying attention whenever a stock quickly increases in popularity among investment companies and newsletters.

If you are certain, paper trade upgrades for a while to see for yourself. But also be aware of which companies are being upgraded. Most are only suitable for short-term investments because of the volatility of certain companies and sectors.

For example, the automobile sector is extremely sensitive and volatile. Take a look at Ford (ticker symbol F) to name just one of many. This chart look's like everything else but definitely not stable. This is because automobile companies rely too much on sensitive factors like oil prices, the overall economy etc. etc.

"But so do other companies" you might argument. Yes! Correct! But my point is, when times are bad who do you thing will still profit? Ford or Wall Mart? We all gotta eat, but we do not needlessly need a new car tomorrow. A lot of us need or even depend on medicine. In good and in bad times. So who do you think will be ahead in the game? Pfizer or Delta Airlines? Now that's another extremely sensitive and volatile sector. The aviation industry. Not my cup of tea!

So, if you see and catch a potential upgrade, ride the wave for as long as you feel comfortable and as long as the trend is moving in your direction, but always be ready to jump off again protecting your investment and profits!

Yours in Successful Trading,

Source by Ricky Schmidt