Everyone has the hope of earning in the stock market, but they do not have the knowledge about it. Through some signals that we are going to talk about now, we can come to an estimate whether the stock will reach its peak heights or go to low heights. According to William Joseph O’Neil (an American businessman, stockbroker and writer) These signals are primarily based on volume, price action, and relative strength.
Specific Signals:
1.New Highs on Low Volume: If a stock continues to make new highs on low volume, it suggests waning institutional interest and a potential top.2.Closing at or near the Day’s Low: Consecutive closes at or near the daily low (“Shooting Stars”) signal weakness.3.Third- or Fourth-Stage Bases: Selling after a stock makes a new high off a late-stage base (third or fourth) is often risky, as these bases are typically wide and unreliable.4.Signs of a Poor Rally:A breakdown near the top on heavy volume followed by a weak recovery rally with low volume and small price gains suggests weakness. It’s advisable to sell on the second or third day of such a rally.5.Decline from the Peak:While a normal correction is 8-15%, a decline exceeding 15% warrants a sell consideration.6.Poor Relative Strength: If a stock underperforms the overall market for an extended period, it’s a sign to consider selling and reallocating funds to stronger stocks.7.Lone Ranger:If a stock is showing strength while other key stocks in the same industry are weak, it’s a red flag.8.Greatest One-Day Price Drop:If a stock experiences its largest one-day price drop from its initial base, especially if confirmed by other signals, it’s a sell signal.9.Falling Price on Heavy Weekly Volume:A breakdown on the highest weekly volume in months or years is a strong indication to sell.Key Takeaways:
Thearticle emphasizes the importance of observing volume and price action to identify potential stock tops.
Relative strength compared to the overall market and other stocks in the same industry is crucial.
Late-stage bases and poor recovery rallies are often unreliable and should be treated with caution.
Disclaimer:This information is for educational purposes only and does not constitute financial advice. Investing in the stock market involves risks, and it’s crucial to conduct thorough research and consult with a qualified financial advisor before making any investment decisions.
