When we speak of channel surfing, we’re not talking about trying to avoid reruns of Three’s Company on TV. We’re talking about monitoring the channels within which a stock is trending. We touched on this earlier in this series with our section on selling when the trend shifts. But we want to elaborate on this a bit.
Trends shift and move in funny ways, so how do you really know if a trend is shifting? How do we know whether a reversal in a downward trend is not just a dead cat bounce? How do we know whether a reversal in an upward trend is not just a correction?
The thing to remember is that stocks prices do not move in a vacuum. Stock prices often anticipate news or events about to happen. This is quite evident when the general market anticipates an interest rate cut and moves up before the event actually happens. Individual stocks are much more subtle. Their price movements often anticipate news that only company insiders are aware of. So with the help of a few handy graphics, we’ll elaborate on the types of movements stocks can make.