Why the Buyer Demand Rating is a Key to Finding Great Stocks

"For the best prospects, do a price and volume check of each week within the stock’s base to help you conclude if the stock is showing sound accumulation or too many price and volume defects. Next, do a fundamental analysis checking for excellent earnings, sales, and return on equity." – William J. O’Neil, MarketSmith Founder.

Winning stocks typically start rising in heavy volumes before they move onto new highs. The strong volume increases indicate that mutual funds and other big funds are actively taking positions.

It usually takes such investors weeks or even months to accumulate the many thousands or even millions of shares that they need to fill out their positions. MarketSmith’s proprietary rating, Buyer Demand Rating, which analyzes a stock’s price and volume trends over the prior 13 weeks, is an indicator of this activity.

A rating of "A" or "B" indicates that funds are buying or "accumulating" the stock. A "C" rating is neutral, and a "D" or "E" indicates net selling or "distribution."

Look at a stock’s daily and weekly charts to see if the stock is rising in heavy volume. On the breakout day, the volume should be more than 40% above average, which would indicate big fund buying. You can confirm this action against the Buyer Demand Rating too.

You can view the Buyer Demand Rating on top of the chart of each individual stock in the MarketSmith India App.

Before buying any stock, it is advised to examine the stock using the Buyer Demand Rating. This rating can be used along with other tools such as the Master Score, which combines major proprietary ratings into one, including Buyer Demand, Earnings per Share, and Price Strength ratings.

As always, make sure that the overall market is in a Confirmed Uptrend and the stock is at a buy point in a properly formed base before jumping in.

Also, do not wait for the A/D Rating to fall to D or E before selling. Analyze the stock’s daily and weekly chart action before deciding whether to hold or sell. Pullbacks in below-average volumes are usually not a concern, but heavy-volume drops could mean that the institutional investors are bailing out.

Related articles:Busting the Investing Myth that Penny Stocks Can Lead to Marvellous Riches

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

Marketsmith India, one stop solution for all your Stock Market needs. Get stock market ideas and stock predictions all at one place. A proprietary tool by William O'Neil India following CANSLIM method of investing.

Busting the Investing Myth that Penny Stocks Can Lead to Marvellous Riches

Marketsmith India has been highlighting some investing myths that need to be debunked in our webinars and learning articles.

These include the idea of buying a stock with its price on the way down so that your average cost goes lower and the notion that you can always make money by buying low, selling high.

Today, the myth that a growth investor should never fall for is the false promise of riches from penny shares.

You have probably received at least one email that read something like: ‘Invest now in X share, While you can still get it for INR 5, the stock looks set to Explode … Small Fortunes could be made by those who get in now!!!’

The idea of making big returns on what seems like a sure bet can be tempting. And people sometimes do get lucky buying the so-called penny stocks.

To read more about Share Market Tips, Share Market News, CANSLIM India, Growth Investing etc visit Marketsmith India

MarketSmith India is an investment advisory product based on William O’Neil’s Can Slim method with model portfolio, pattern recognition, idea lists powered by institutional quality data