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FAQs Frequently Asked Questions

Dr K Market Direction Model
If MDM is on a sell signal, should I go long a stock?

 Q: One thing I'm struggling with is utilizing your Market Direction Model (MDM) signal for entering new stock positions. Last evening, you noted two Pivot Points, one for INCR and the other for IDTI (for which I hold a position). 



A: When it comes to initiating long positions in stocks, you should first let the stock's chart identify its strength. During weak markets, a stock that bucks the trend is strong, thus there may be an actionable buy point ahead. That said, weak markets can be a yellow flag. If you decide to initiate any long positions, you might want to keep them small. 

The Market Direction Model (MDM) is an intermediate term model as it seeks to capture major trends, so even if it is on a buy signal, that does not mean the market cannot pull back a few percent which, in 2014 and 2015, have caused leading stocks to fall much harder. Thus, keeping stops tight is key even if MDM is on a buy signal.

Keep in mind stocks can act independently from the signals of the MDM. For example, should a stock show unusual strength during such periods of market weakness, you should keep a close eye on that stock as when the weight of the market comes off, such stocks often spring to life. Also keep in mind that market pullbacks are often met with sharp bounces, so initiating a new long position in a stock at a major support point can be a good strategy.

2014-2016 have been years where buying on weakness has been a sound strategy since uptrends have been short-lived and are followed by pullbacks of a few percent or more, which tend to wipe out any profits made in a particular stock.

First published: 18 Nov 2015
Last updated: 15 Jun 2018