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In addition, trading styles cannot be cast in stone and must be modified from time to time in order to keep them effective in changing market conditions. Your education is never complete, in that nuances and correlations that work today may be worthless tomorrow. Also, the market is always changing, so that you enter the same river but the currents and the water are different every time. |
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A trader eventually develops a list of companies that participate in the same industry and in the same line of business. The assumption is that if the news bashes or bolsters the stock of a particular market leader in any given industry, there may be a correlative spillover effect on stocks of other companies whose product lines are substantially similar. This cascading effect has two consequences. |
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First, the relative strength or weakness of any bellwether stock may act as a barometer for the remaining stocks in that sector. Your sense of anticipation may allow you to begin trading on the trend before the trend is noticed by anyone else. It depends on how many price movements you need to recognize as the beginning of a trend. Some chartists believe that increasing prices, which do not break a top line, already constitute a downward trend. Others need more confirmation. |
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Also, second and third-tier lower-cap stocks are generally lower priced than the more highly priced, well-capitalized market leaders. These lower prices of the lower-tier stocks often allow you to keep this kind of position open within your margin availability while you are trading other stocks. |
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Continuing refinement of the product-line matches adds exactness and lack of distortion to the forecasting potential of your sector list. You must also make adjustments from time to time to your industry chart so that you compare peer groups and their associations relative to market swings. Verify whether the second- and third-tier companies in that industry are moving in tandem with price changes, as you would |
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