10 Steps to Buying Stocks in a Bear Market | Stock Trading Strategies

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10 Steps to Buying Stocks in a Bear Market

Legging-In To Your Stock Positions

Unless you met your spouse while you were smashed in Las Vegas, you probably didn't get married on your first date. Making such an important decision in such a short amount of time with virtually no information about your potential partner would be crazy. Most people date for years before they decide to make the jump and tie the knot. When looking at stocks in the middle, or possibly the end, of a bear market, you should be looking to do the same because while there is always risk in the stock market, the systemic risk in the market is heightened during a bear market.

[To learn more about systemic risk and the other risks you face in the stock market, check out Dealing with Risk in the Stock Market—one of our easy-to-understand articles and videos.]

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When you want to buy a stock, there is no rule that says you have to enter your full position at once. Nobody is holding a gun to your head, telling you that if you want to buy 50 shares of Walmart (WMT) that you have to buy all 50 shares right now or you can't buy any at all. Buying stocks is not an all-or-nothing proposition. You have the ability to buy a little bit today, to see how your investment performs and then buy a little bit more tomorrow or the next day if you are pleased with the results. Buying the same stock little by little is called legging into your position, and many successful investors utilize this strategy.

Edwin Lefevre, the author of Reminiscences of a Stock Operator, espoused leggin in when he said:

It is no trick to tell when the market can take what you give it. But in starting a movement it is unwise to take on your full line unless you are convinced that conditions are exactly right. Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don't make a second unless the first shows you a profit. Wait and watch. That is where your tape reading comes in---to enable you to decide as to the proper time for beginning. Much depends upon beginning at exactly the right time. It took me years to realize the importance of this. It also cost me some hundreds of thousands of dollars.

Legging into your stock positions is a simple, easy-to-implement process. All you have to do is use the following 10-step process:

1. Pick a stock

2. Define a buying range

3. Set a stop-loss level

4. Determine your share allocation

5. Determine your price scale

6. Make your first purchase

7. Monitor the stock

8. Sell if it drops

9. Buy more if it climbs

10. Adjust your stop-loss level as needed

This special report continues on the next page...

Comments

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Sarah Gruber

|2009-01-13 04:42:44

Pretty good advice on buying stocks. Market remains volatile, but is getting
ripe for purchase soon. My opinion is that market will suffer another 20% plus
drop before settling into a period of stagnation.

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