It is often said, “Only when the tide goes out, do you discover who’s been swimming naked.”
When markets come under pressure, a strict sell-rule is what can protect you from emotional and financial stress. Often, when the market is in a correction, three out of four stocks follow the market direction. Investors often believe they are right in their research and approach and cling on to a stock, even if the markets turn the tide. Selling is the key factor that determines a successful investor from others. If a sell-rule is in place, it provides a clear framework for avoiding biases and emotions to creep into your investing. With the Indian market in a correction, do not hesitate to sell away stocks that breach your sell rules. You simply cannot afford to have a love affair with a stock as it could become an extremely expensive affair.
Post a correction in the markets, a Rally Attempt begins after the markets cool off, and the index trades above the recent bottom for at least three consecutive sessions. A Follow-Through Day is a solid up session, generally a 1.5% or higher gain, with volume being higher than the previous day. A follow-through session officially opens the buying season for leading stocks. Leaders often second the Rally’s confirmation by breaking out of bases near the Follow-Through Day. A Distribution Day is a weak day in the market, when the index closes on higher volume by 0.2% or more. The number of distribution days in the market can be used to gauge the strength in the market
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