The Basics

	PowerInvesting Weekly Alert Basics

	You will generally see 2 lines with each stock featured in the Weekly Alert. One is the short-term downtrend resistance and the other is the uptrend support level. The entry/buy signal for our system is a close above the stock's short-term downtrend (downtrend resistance line). About half the time, the stock has already broken its short-term downtrend when its featured in the Weekly Alert. Using our system, we would buy at the open the following trading day. In the case where the downtrend has not been broken with a closing price, you would wait for this signal. The example below illustrates when the target entry signal has been reached:

	The chart above graphs the stock price through Mar. 20th of 2008. The trading day prior to March 20th, the stock closes strongly above the downtrend resistance line as circled on the chart. (On the members-only site, you can see an updated chart each day by clicking on the chart on the members site. The latest chart comes up with the trendlines already drawn.) Using our system, we would place a market order for the next days opening price, which in this case is the opening price on March 20th. For those unfamiliar with candlestick charts, an example of each type of candle is shown below. Candlestick charts are awesome. The colors, candlestick body and the top/bottom lines quickly communicate the action of the stock that day. Each type of candle is explained below. Its quite simple to learn:

	Once we enter a trade, the system calls for entering a limit order for our target sell price. In this case, our target sell price was $51.90 which was reached just a few days later. With stocks that show a strong initial move like this and have strong fundamentals, we would keep up to half our position and let it ride until the uptrend support has been broken with a closing price or another sell signal emerges discussed in our PowerInvesting ebook .

	As can be seen on the chart above, the stock closes below our original uptrend support in late June. However, you will notice that a new higher trajectory uptrend has developed since our entry in March. The stock breaks this uptrend at a much higher price after we reported a bearish reversal signal for the overall market in late May. That was the time to sell the rest of our position at around $58. The stock quickly reclaimed its uptrend support but later waivered and closed below it again which is typical behavior once the uptrend has been broken the first time. If the fundamentals remain strong, the stock will normally come back up and touch the uptrend support, at least briefly, but not always. If fundamentals weaken or the market is peaking or in a downtrend, its a clearcut signal to exit the trade.
	Now if the stock closes below the uptrend support prior to reaching our target sell price, this is a clear sign that the uptrend has been broken. We then cancel our limit order for our target sell price and change it to a market order for the market open price the next day. This occasionally results in a slight profit but normally at a price somewhat below our entry price. If another sell signal discussed in the PowerInvesting ebook emerges, at any time after entering the trade, we sell immediately.
	Important Rules to Live by
	Practice trade without using real money until you are comfortable with our system. If you start during a bull market and a bear market develops, be sure to practice trade your first market downtrend as well. If a stock closes below its uptrend support before reaching its target entry, we generally take the stock off our radar and look for the next trading opportunity. Sell a couple weeks prior to the earnings release for your stock during a trade. The only exception is during a bull market when the stock has beaten their expectations by a wide margin over the past several quarters. Check the risk-reward ratio at the point of entry. Occasionally, the price jumps much higher shortly after being featured in the Weekly Alert. The short-term downtrend may be broken at that point but the stock may be at a price where the risk-reward ratio no longer justifies a trade. In these cases, you can wait to enter after the first pullback in the stock when the risk-reward ratio is favorable. Typically, this ratio is at least 1.5 to 1, meaning 1.5 times as much potential profit as potential loss with the trade. Diversification is an important consideration. We always diversify our trading capital among at least 4 stocks, sometimes keeping a substantial amount in cash during a bear market. Talk to your financial advisor about how much of your portfolio to put into individual stocks. Follow the other rules discussed in the PowerInvesting ebook .

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