They say “no one can time the market.” I went to a top business school, worked for some of the biggest and best Wall Street firms, dealt with some of the largest institutional investors and most sophisticated consultants in the world. I can’t remember anyone ever advocating market timing. Clearly it must not work.
When I returned to closely following the markets in 2011, I started from scratch, tossing out everything I (and nearly everyone on Wall Street) had been taught. I studied, experimented and made plenty of mistakes. In the end, I found a combination of outside-the-box techniques that made sense: Chart Patterns, Harmonics, Analogs, RSI Channels and traditional Technical Analysis.
Sure it works in practice, but will it work in theory?
The strategy is fairly straight-forward: focus on determining where markets are going (the hard part) over the next few hours, days or weeks and invest accordingly. That means being direction-neutral; not caring whether the market is going up or down. Be on the right side of it and capture most of the moves most of the time.
We can question whether stocks should be going up. But, there’s no profit in shaking your fist or screaming at your computer. Invest according to what stocks are doing and square it with the Grand Unified Theory later. Using the above tools can be quite helpful.
The trick is in figuring out when they will work, and when they won’t. We all know about BTFD. The Fed, BOJ, BOE and ECB have essentially banned downturns. It’s been exceedingly tough to make money by shorting stocks since the 2011 lows.
Yet, opportunities exist for nimble traders to make money on daily and even intra-day swings. When SPX suddenly reverses due to a quick drop in VIX or USDJPY, often those drops were foreseeable. By knowing what to look for and when potential reversals are approaching, you gain an advantage over the uninformed.
Being a nimble trader isn’t as easy as it used to be now that central bank planning that essentially scripts out many of the “market’s” moves. Whether it’s my approach or anyone else’s, start out with modest bets. Study not only the charts, but yourself.
I’ve learned the hard way that I’m a much better technical analyst and market forecaster than day trader. Your strength might be in another area. As the great philosopher said: “a man’s gotta know his limitations.”
Making good decisions, ditching bad ones
If you buy AAPL at $120/share because you think the new iGadget will be the next big thing, and the stock slips to $105, should you hold on? What about $95, or $90? What does your research say? At what point do you decide you were wrong and just sell your shares? What about shorting it? Does that ever make sense?
With my strategy, if I buy AAPL at $120 because a harmonic pattern or channel suggests it could go to $135, but it drops instead to $115, then I was wrong about that pattern playing out. I don’t care whether the product’s release will be delayed, or whether Samsung is coming out with a competing product, or when the next Mass Coronal Ejection is expected.
All I know is that the reason I went long the stock is not working. And, I usually know right away. If my stance is wrong, I should probably switch sides. If I shouldn’t be long, chances are I should be short.
CNBC probably devoted 100 hours of airtime to AAPL’s decline in 2012. Did you ever hear any talk of the obvious Head & Shoulders Patterns or price channel?
Selling AAPL short when the first H&S Pattern completed would have earned 23% by the time it bottomed out in April. Even if you waited for it to exit the equally obvious price channel, you’d still have made 13% (our calls were much better, see: HERE, HERE and HERE.)
It’s not foolproof; markets are frequently
manipulated managed in such a way as to “bust” some of the more obvious patterns. But, if you use stops and don’t get emotionally attached to a viewpoint, you have the opportunity to get most of the trades right most of the time — which is, after all, the objective.
Is it right for you?
It depends on your goals and how much time and effort you want to devote.
If you’re a day trader who wants to know critical price levels with input on Chart Patterns, Harmonics, Analogs, RSI Channels and traditional Technical Analysis — we’ve got you covered, especially if you want to learn the techniques and not just get an occasional trade message.
if you’re a swing trader who wants to stay properly positioned relative to key patterns, Fib levels, etc., I post a “Current Forecast” page that outlines my current orientation. The daily posts provide more detail and are the first to be updated in the event something changes.
If you’re a buy and hold type, you might still benefit from this site. Wouldn’t it have been nice if you’d known in advance, as our members did, about the meltdowns that began in July 2011, Apr 2012, Sep 2012, May 2013, Jan 2014, May 2015 or Jan 2015 or the big rallies that began in June 2012, Nov 2012, Oct 2014, Aug 2015 or Feb 2016? [click the dates for the actual posts.]
Again, I don’t get them all right. No one can. Some forecasted downturns never materialized, and some rallies fizzled sooner than expected. Again, my goal is to be right on most of the moves most of the time and not get worked up over the inevitable misses. Good luck, and good trading!
* * * * * * * *
To subscribe now, CLICK HERE