INVESTING AT THE END OF A BEAR MARKET by Scott Cole

At this point in time, many traders and investors have no desire to be in the stock market after 40-50% losses in the major averages in just a year, and 70-100% losses in many individual stocks. However, as the market has tried to find its bottom, now is the time to scour the market for the next big winners.

How can you identify these potential big winners? Well, the first good sign is a stock that has actually been rising while the market has been heading lower. The list of these stocks is actually pretty small. You can find a list of stocks making new 52 week highs or with high Relative Strength ratings in Investors Business Daily or in the Wall Street Journal. Personally, I use the TC2000 software produced by Worden Brothers.

Once you have found a list of stocks that have been outperforming the stock market, it is time do dig a little deeper. One method of identifying potential big winners is the CANSLIM method outlined in his book "How to Make Money in Stocks" by William O'Neil, founder of Investors Business Daily. This book is an excellent read and a great source for learning how to invest and trade individual stocks. However, it is not a mechanical method for trading and requires some knowledge about a company's business, management and products.

I prefer a method more similar to that discussed in Nicholas Darvas' classic book, "How I Made $2 Million In The Stock Market." This methodology identifies the stocks that have been rising the fastest on good volume, and then, using his Box method, determines a point of entry. Exiting the trade is a little more subjective as far as the initial stop loss is concerned, and using the pyramiding boxes as trailing stops can leave a lot of money on the table when the stock's trend is over.

With that in mind, based upon my background in trading commodities and developing trading systems, I developed a more mechanical method for trading these high momentum stocks, which I outline in detail in my ebook, The Ultimate Stock Trading System. This trading system combines the overall stock market timing ideas of William O'Neil and stock index and mutual fund trader Gary Smith with the Darvas methodology of identifying high momentum stocks, and the added touch of a mechanical trend following system.

Now is the time to start looking hard at the stock market for the next group of big winners. They may not appear for a few months, but the easiest and fastest money made in the stock market is in the first couple years of a bull market. Furthermore, even if the next big rally turns out to just be an intermediate term rally within the context of a larger bear market, there will be a few stocks worthy of trading to catch that ride up.

Do your homework, and your portfolio will benefit handsomely in the years to come!
Scott Cole www.theultimatestocktradingsystem.com www.kungfutrader.com

About the Author
Scott Cole is a real estate professional and stock and futures market trader and analyst. In the 1990's he focused mainly on commodity trading, working for two Commodity Trading Advisors as an analyst and execution trader. He continues to develop models and strategies for trading stocks and futures. He is owner of websites www.theultimatestocktradingsystem.com, www.bestdaytradingstocks.com and www.kungfutrader.com