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[setravis]

Investor's Business Daily
Improve Your Returns By Feeding Best Stocks, Starving Laggards
Wednesday November 23, 7:00 pm ET
Juan Carlos Arancibia


A key point about making money with stocks is that when you come upon a winner, it should take up a bigger share of your portfolio.
Once you've identified your top performer, you want to add shares at key intervals. The market's top-fuel stocks are where the real money is made. Plowing more cash into those leading stocks is called the force-feeding method of managing a portfolio.

To fund additional buys, sell your underperforming stocks. Those are the ones treading water or showing a small loss. Your money is better used on better performers.

When you buy extra shares, do it at points where there's less risk. A leading stock will offer new buy points as it rises from its breakout. One of the most common is the first or second time the stock pulls back to its 50-day moving average and finds support there. The pullback should occur in light volume. If the price holds near the 50-day, you may buy more shares as the stock rebounds.

Another good spot is when the stock makes a 52-week high or clears a short-term consolidation such as a base-on-base or three-weeks-tight pattern.

Keep in mind that any time you're adding to a position, you should buy a smaller number of shares than in the previous purchase. If you bought 500 shares as a stock broke out of its base, you'd buy, say, 200 shares on the pullback to the moving average. On the next purchase, buy 100 shares. By "pyramiding" up your position, you're concentrating your cash in your biggest winner.

Conversely, trying the opposite tack -- the "averaging down" method of buying stocks as they're falling to get a lower average cost -- can be risky. Stocks that fall in heavy volume tend to keep falling. If you try to grab stocks on the way down, you could get cut by the falling knife.

Apple Computer (NasdaqNM:AAPL - News) has been a hot stock in 2005, its earnings and sales growing rapidly. The firm's iPod digital music player and PC business have both fared well. Since the fiscal fourth quarter ended in September 2003, earnings per share have grown at a triple-digit pace.

Apple formed a seven-week pattern starting in mid-February of this year (point 1). The stock then fell further, undercutting the earlier base (point 2) and resetting Apple's count to create a fresh, first-stage base.

The stock broke out Aug. 12 (point 3), clearing its 44.48 buy point. That was the time to make the initial, and largest, purchase. Apple eased in the next three weeks, then cleared a 52-week high (point 4). That was the first opportunity to add shares. Although not true breakouts, any time a stock reaches a 52-week high is a positive move.

Apple pulled back to its 50-day on Oct. 12 and immediately found support (point 5). That was another time to add a smaller number of shares. Apple has climbed 52% since its breakout, including brisk gains from follow-up buy points.

[Terliso]

That's right Setravis APPL is so hot, products are hot (iPod)... feels like my 40GB iPod already out of date, I'm dying to get the new Generation IPod this coming christmas the "IPod Video" .... i don't have this stock but i like their IPod ..... again i must Applaud you for the nice input, good job Bro!!!

[fous]

nice post Setravis!

Applaud as usaual 

-fousc

[setravis]

Read this article, get some Knowledge....educated...
I think this average down is a no,no !! You could not make me agree with that move no matter what you say. Before I do that,I sell cut the loss and move on .What say you?

[basonista]

Read this article, get some Knowledge....educated...
I think this average down is a no,no !! You could not make me agree with that move no matter what you say. Before I do that,I sell cut the loss and move on .What say you?

I think of averaging down as buying more of a losing proposition.  You are already losing money on a falling stock so you put more money into it?  Just makes you lose more money faster!

Interesting idea of pyramiding up.  I'll have to give that some thought....