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What is a Market Leader and the Greatest Advantage of Wall Street

July 12, 2013




 

Market leaders are the stocks that emerge first; stocks that hit the 52-week high list as the market is starting to turn up and emerge from a correction. Some even emerge before the market actually bottoms. As a bear market is bottoming, the leading stocks are generally the ones that best resisted the decline.

These leading stocks will break into new high ground while the major indexes are just starting to come off their respective lows, during which overall market conditions still look bleak to most investors and the news is still, for the most part, negative or cautionary. Later, the rally broadens, pushing up the indexes, which propels the frontrunners even higher. At that point, sentiment begins to shift from fear to optimism.

Few investors buy the true market leaders and fewer buy them at the correct time. They focus on the market instead of the individual market leaders and often end up either buying them late or owning laggards.

In the example above, PCYC emerged into new high ground on 2/4/10. On that same day, the general market as measured by the Nasdaq Composite Index hit a new low. This is a clear example of market leadership. Over the next 48 trading days, PCYC advanced 90%, during which the Nasdaq Composite only rallied about 18%.   

It can be very confusing if you listen to what other people are saying instead of paying attention to what the leading stocks are telling you. If you want to make big profits in the stock market, learn to track and invest in the true market leaders.

 

It’s true that investing in market leaders and in the stock market in general can be very risky, however, what can off-set that risk and make it a worthwhile opportunity is instant liquidity, which gives you a degree of control over the risk. You must learn to use this to your advantage.

 

If you invest in stocks that have big potential and you cut your loss short, you can achieve a high reward to risk ratio.  Maintain that ration and you will enjoy consistent profits.  However, if you invert the ratio, you WILL suffer.  This is the Holy grail.

As a speculator, your account (meaning, your cash) is your most precious asset. You worked hard to earn it and build it, so you should work even harder at protecting it, because it is much easier to lose quickly than it is to gain.

The great advantage of stock investing over virtually every other investment such as real estate, land, art, etc. is instant liquidity; the ability to always be able to sell at the current price.

By refusing to cut losses you give up the greatest advantage the stock market offers; the ability to sell immediately and maintain a positive reward/risk ratio.

Every 50% loss starts as a 10% loss. The only way to protect yourself is to accept a small loss before it snowballs into a big one. During my 30 years as a stock trader, I have not found a viable alternative.

There’s a fortune waiting for you in the stock market if you learn to do what most people won’t do. Buy the leaders when most investor think they look too high and cut your losses small before they balloon.  The majority of investor’s DO NOT invest in true market leaders and DO NOT cut losses short, and in turn, give up the greatest advantage Wall Street offers.
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Mark Minervini



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