10 Market Ideas to Start the New Year 15 comments
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1. Be patient with trades and setups. Do not chase trades. Let them come to you. If you miss a trade, that's okay.
2. The best setups in this market focus on extremes. Buy extreme weakness and sell extreme strength.
3. Watch for accumulation patterns that form as prices base near lows. This will get you in on "bottom" trades early.
4. Ignore the market forecasters and pundits.
5. It's all about the charts. Price, volume, support, resistance, overbought and oversold indicators are all you need to make money.
6. Manage risk vigilantly.
7. Define your stop-loss and target before entering a trade, and stick to it!
8. Keep an eye on breakouts and watch for sectors that are well represented in breakout scans. These sectors will lead the next rally.
9. Do not watch CNBC.
10. Write down a few important resolutions, post them on a big board in your office, look at them every day, *act* on them everyday and stick to them. I will post mine soon.
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This article has 15 comments:
As with any endeavor, it comes down to talent, desire, attention to detail, failure, persistence, ability to learn. What you describe above is the result of experience and not the secret to success. The majority of traders have got to go broke or fail significantly a few times before ending up in the success mindset you describe.
And I take exception to your comment 'it's all about the charts'. Fundamentals, news, can over-ride any chart, anytime.
Just out of curiosity, why should we watch CNBC?
Just out of curiosity, why should we NOT watch CNBC?
And for Hollundus. Unless you are very focused on your charts and can ignore CNBC, it will interfere with your trading. CNBC is an entertainment channel and not really of much help in trading. Their job is to get you to watch the **news** and therefore the ads so they can fund their network. So over the last few months, you may have noticed that the only topics of discussion were "What is wrong with the TARP program", "Should we bail out the Big Three", "Bernie Madoff's Ponzi scheme". Pretty soon it will be "Obama's effect on the market", followed by "Obama's mistake on the market". The hot-button emotional issues just keep coming at you in a constant barrage. In amongst these issues, you'll note there is very little real information about how or what to trade. For instance, how much good does it serve you to know you just missed a $4 jump in the price of oil? How about hearing that bond funds have skyrocketed 30% in tthe last year, or that most funds have dropped 40%. Then there is the constant musical chairs of 'experts' that talk up one segment of the market only to have the other guest talk it down. None of this helps you trade, and it serves really to cloud your view of the market.
Having said that, I have a weakness for Fast Money.
jegan ;-)
-good for short term, displays what's happening, the real act and NOT the perceived act by the investors as observed by commentators. Good for NIMBLE Traders!
Fundamentals
-for Long term ONLY. Look at the FAKE balance sheets produced by FIR institutions since 2000! It takes a while for the fundamentals to assert in a FREE Mkt but NOT in a Mkt where Govt is constantly meddling, like now. Look at the unreliabiliability of Rating Agencies and the regulators like SEC or the DOL's creative statistics . NONE of them reliable in assessing the long term effects.
Best - Combination of both with critical thinking but keeping in mind the short fall of both!
Don't take the criticisms too much to heart. I agree you didn't speak to the "core values" of longer-term investors, but most will ignore your maxims at their peril. My central investment strategy is to buy under-valued equity and hold for the long run (ideally, 3-5 years, with some longer). But risk management has been central to my success. I use stop losses most of the time, and protective puts or short against the box occasionally. This sometimes diminishes my returns modestly in volatile uptrending markets, but has saved my shirt (and most of my wardrobe) in 2008.
The problem for value investors like me in 2008 has been no visibility to future earnings. Both past earnings and future estimates for banks in the first half of 2008 indicated historic undervaluations. Woe to those who believed the numbers and didn't use risk management if they stuck their toe in that water.
I have always believed that technical (chart) analysis has an important role for long-term value investors. Advantageous entry positions can be determined that way. Also, when something you own exceeds fair value, one often benefits from using technicals to determine an advantageous sell point. Finally, when using stop loss risk management, whip saws can be reduced by keeping the stops below support levels.
My credo: use fundamentals to decide what to buy and use technicals to decide when to buy.
Finally, CNBC. It is a form of entertainment. So many of the talking heads are talking for their own self promotion, not the audience's education. Projections are made based on generalizations and vacuous logic. However, amidst the chaff, there are grains of wisdom and every once in a while that can be gleaned. Most of the time, though, don't forget: it is entertainment.
Good comments. They were not up yet when I started my comment so I did not recognize them. (A visitor imterupted my writing for about 30 minutes or so.) I could have saved some of my words had I simply cited what you said. Sorry.
Let me address a few questions and misunderstandings.
1. When I say it's "all about the charts" and that "price and volume" are all you need to make money, I was talking to readers of my site (themarketspeculator.bl...), who are short term traders. IMO, fundamentals are a waste of time for this type of trader, though great for value investors. I mean no offense to long term investors who rely on fundamentals.
2. Accumulation patterns arise when underlying volume within a price pattern is positive. For example, if a trading range has formed with strong positive volume and low volume on down days, this is a bullish signal.
3. Why am I anti CNBC? I have nothing against the network. It's actually quite entertaining. Unfortunately that's part of the problem. It takes the focus off reality (for me that's the charts) and places it on hype, propaganda, fear mongering and what sounds good that day.
4. Those expecting more details--this was a general post for 2009. On my own site I have provided many details about my trading style. Previous articles on Seeing Alpha provide some insight:
seekingalpha.com/autho...