Aiming to figure out how to predict stock market trends will most likely undermine your long-term portfolio returns

highly volatile stocks

Learning how to predict stock trends is not possible—so it’s best to instead build a well-balanced portfolio focused in top blue-chip stocks

Aiming to learn how to predict stock trends can make interesting and worthwhile reading. It won’t bring you any direct or immediate financial benefit, but it can expand your investor knowledge.

But one of the key things you’ll learn is that studies of market factors only show what happened within specific start and end dates. Often these dates are chosen because that was a time when the factor seemed to have the desired effect.

The effect is likely to be less pronounced if not absent in studies of different and/or longer periods. Our view is that most stock-market trading patterns, if not virtually all, turn out to be examples of the fact that random events tend to occur in bunches.

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Attempting to determine how to predict stock trends can derail your efforts and send you into short-term selling

When investors base buy and sell decisions on a short-term stock market forecast, they often experience notably poor investment results, or even lose money. This may come as a shock to them—that their predictions didn’t come true. It may have seemed to them that market trends, up or down, are easy to foresee. But in fact, nobody consistently foresees these trends. That’s why most investors hurt their returns if they let short-term stock market forecasts have much of an impact on their investment decisions.

That’s despite the fact that many investors may have guessed right about a coming trend at one time or another. Maybe they bought just prior to a big upswing or sold in advance of a major slump. In the long run, however, these experiences may wind up costing them money. They may bet twice as heavily on the next trend they foresee, with more volatile stocks, only to discover their forecast was 100% wrong.

How to predict stock trends: Don’t let apparent stock trading patterns push you into making bad moves

If you’re using stock trading patterns and technical analysis to time the market, you’re destined for failure.

For centuries, people have been looking for recurring stock trading patterns that they can use to gain an advantage over other investors. Many try to link stock-price trends and turning points to months or dates on the calendar. Others look to events outside the market for guidance. They create rules and indicators that seem to have “worked” in the past.

When you evaluate these patterns and rules, you have to keep one key fact in mind: random events often occur in bunches. When you flip a coin, any heads-tails pattern of any length can repeat any number of times. The string of repeating patterns can end abruptly, or taper off over time. But eventually, over long periods, heads will come up about as often as tails.

Meanwhile, it’s all too easy to sell a stock that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless.

Before you act on a selling rationale, take a broader look. Consider facts about the stock, and about your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But it’s always a bad idea to sell a good stock for trivial or transitory reasons.

Rather than trying to learn how to predict stock trends, invest instead in the best blue-chip stocks

The best blue-chip stocks to buy and hold in your portfolio all have one thing in common: They give you reason to believe they might be worth holding on to indefinitely.

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply: these stocks have a clear business plan that seems to be working.

Blue chips have established their value over the long term. Like all stocks, they can fluctuate widely and many suffer in a long-term market downturn, but they offer a higher probability of long-term gains.

We feel most investors should hold a substantial portion of their investment portfolios in securities from blue chip companies. These stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above-average growth prospects, compared to alternative investments.

Use our three-part Successful Investor approach to build a portfolio instead of trying to learn how to predict stock trends

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

How do you “predict” what might happen in the market when you invest in a stock?


  • I have a portfolio of stocks and ETF’s as well as mutual funds for a total of 44 positions. My selection has been made using the following rules. To consider a stock it must be profitable now and for the past 5 years, must be paying a dividend now and for the past 3 years. The company must be listed on TSX, NYSE, or Nasdaq. Certain holdings are traded when they have dropped and will purchase between 3 to 5 $000 and when the stock has doubled in price I sell 1/2 the purchase, thus my investment cash is returned and my holding has increased. As I am getting older I am slowly divesting of individual holdings and placing that cash in ETF’s. I also have a small portion of funds investing into the small Dogs of the Dow (about 5% of my portfolio). During a year I trade between 8 to 14times and use a discount broker. I find that your news letters a valuable resource in planning what to do.

    R. Brooke

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