How to

BUY STOCKS
When you’re considering buying a stock, follow this
THREE-STEP ROUTINE to put the odds of success
in your favor.

Step 1: CHECK THE MARKET DIRECTION

HOW DO YOU CHECK THE MARKET DIRECTION?
More important than figuring out You can find the market direction on the investors.com
which stocks to buy is deciding homepage under “Today’s Market.”
whether you should be buying any
Here’s what IBD’s three proprietary market directions mean
stocks right now. Research shows
for you and your portfolio.
that 75% of stocks move in the same
direction as the major indexes, CONFIRMED UPTREND
which is why you don’t want to make This is the best time to buy fundamentally strong stocks
new buys when the market is in a that are breaking out of proper base patterns.
downtrend.

UPTREND UNDER PRESSURE

Think about market conditions
Be very careful about making any new buys and be
the same way you handle road ready to take defensive action, since the uptrend may be
conditions. When you have clear skies running out of steam.
ahead, you can go a little faster. If the
roads are icy and it’s snowing outside,
MARKET IN CORRECTION
you need to slow down and be much
Making new buys in a correction is risky. Sell your weaker-
more cautious.
performing stocks and keep a close watch on your
stronger stocks and be prepared to lock in profits.

Step 2: EVALUATE THE Once you’ve checked the market trend,

you’ll want to make sure that a stock you’re
considering buying has strong fundamentals.
STOCK’S FUNDAMENTALS
What are Look for these signs of That sounds like a lot of
fundamentals? fundamental strength that research. Is there a shortcut?
Fundamentals are the the biggest stock market There is! As an IBD® Digital
underlying aspects of a winners have in common. member, you can go to
company that drive the 25%+ earnings growth in the the IBD Stock Checkup®
price of the company’s most recent quarter and type in any stock’s
stock. Earnings, sales, profit ticker symbol.
margins and return on 25%+ earnings growth over the
equity are all examples of last 3 years You’ll get an instant report
of fundamental health, complete
fundamentals that have a
25%+ sales growth in the most with the IBD Composite Rating,
strong correlation with the
recent quarter which combines the most important
price of a stock—when they
fundamental factors into
go up,
17%+ return on equity (ROE) an easy 1-99 rating.
the stock
tends to A new product or service that You’ll also see a full report of
increase is leading or revolutionizing its fundamentals complete with green/
in price. industry yellow/red dots indicating a pass/
neutral/fail grade.

WHY DO CHART PATTERNS FORM?

As a stock gains over the course of its price run, it may
WAIT FOR A BREAKOUT periodically pull back to form areas of price consolidations—also
known as chart patterns (or bases). This often happens because:
FROM A CHART PATTERN Large institutional investors sell shares to lock in profits

A market rally has run out of steam

WHAT Cup-with-Handle
IS A CHART PATTERN?
The company reported a weak earnings report
Investing legend and IBD founder William O'Neil researched the
best stocks of all times and found that the same patterns kept
showing up on their charts before big price gains. If you learn to Whatever the reason, a temporary pullback and consolidation is
spot these chart patterns, you can time your trading to buy as a not unusual and allows for a new base to form. This gives you the
opportunity to start a position in the stock at an ideal time.
Depth %

stock is breaking out and preparing for big gains.

Base length

Flat Base
THE
3 MOST COMMON
Chart Patterns

Cup-with-Handle
Depth %

CUP-WITH-HANDLE ✔ Most common and profitable

LENGTH: 7-week minimum
chart pattern
Base length
BASE DEPTH: 15-30%
✔ Resembles a teacup viewed
from the side
IDEAL BUY POINT: 10 cents above peak
✔ Winning stocks often start big
in handle
Depth %

runs by forming this pattern

Base length

Double Bo om
Cup-with-Handle
DOUBLE BOTTOM ✔ Often occurs when market is
LENGTH: 7-week minimum
choppy and volatile
Flat Base ✔ Looks like a lopsided “W”
BASE DEPTH: 40% or less

✔ Can set stage for huge price IDEAL BUY POINT: 10 cents above peak
in middle of the “W”
Depth %

gains
Depth %

Base length
Depth %

Base length
Base length

FlatBASE
FLAT Base ✔ Often occurs after a stock
LENGTH: 5-week minimum
forms a cup-with-handle or
double bottom BASE DEPTH: 15% or less

Double Bo om ✔ Milder decline than other base

patterns
IDEAL BUY POINT: 10 cents above peak
within the base
Depth %

✔ Shorter time frame

Base length
Depth %

3-STEP Bo om 1
IBD’S Double Check the market
direction on 2 Go to the IBD Stock
Checkup and 3 Review the stock’s chart and
look for a breakout from

BUYING CHECKLIST
Base length investors.com and make sure a stock’s a chart pattern on high
make sure it’s in a fundamentals get volume. Buy within 5% of the
confirmed uptrend. good ratings. chart pattern’s buy point.

That’s it for our guide to buying stocks.

Depth %

BOOKMARK THIS PAGE and refer back to it before you make new buys.

Base length
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