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“Da Bears”

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I just returned from the Wealth Expo in Atlanta where I gave a talk on Friday.

It’s always fun to meet with other traders and share our stories.

After a major, multi-year Bullish run, my indicators have put the markets in Bearish territory for now. We’ve had a 3 Wave or A,B,C pattern down off the highs. Now it remains to see where we go from here.

So far we’ve held the previous low in the major indices and are in a trading range. It wouldn’t be surprising to see this range hold until after the Fed announcement, but no one can predict the future.

However, whereas the long move up was on very low volatility, that has changed. The market is now in a high volatility situation. This is especially important for Option Traders to note as you decide which strategies to use. It may be time to employ different strategies than you’ve been using the last few years … or at least make adjustments in your style. Bottom line – watch your Vega!

You’re a Genius!

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I saw Robert Kiyosaki on PBS today. He’s the author of the best-selling book Rich Dad, Poor Dad.

By the way, if you don’t have the book, get it now. It is financial genius!

… and speaking of “genius,” Robert was talking about how EVERYONE IS A GENIUS.

He’s right.

I love how he explained it. He used a play on words, and said that being a genius is about the “Genie-in-us.” Cute, but right on.

You may not be a rocket scientist.

You may not be a brain surgeon.

But you have a NATURAL talent or inclination toward something.

It may not be academic, but you’re a genius, you’re a “natural” at something. Whatever it is … that is magic. That’s your “genie” that can perform miracles. Wishes you make around that natural talent will come true!

Fine, but how does that apply to trading?

In 2 ways:

FIRST: Maybe trading isn’t for you! Seriously consider that thought, because it’s not for everyone. Do you really have the personality to be a great trader (and if you’re not great, you’ll fail).

As a trainer, it’s heresy for me to even raise this issue. But with such a low success rate among traders, it’s a very important question to ask. To become successful will require a lot of work and a lot of changes in yourself.

Do you have another GIFT that is being ignored while you’re trying to become a trader? If so, you’re doing yourself and the world an injustice! Follow your bliss, grow your gifts. That’s where you belong in life.

SECOND: If you decided that you ARE a trader in your heart of hearts, then you still need to find the Genius inside of you.

I’ve taken more trading courses than anyone I know. None of them were bad. I learned something from every one of them. BUT …

… there wasn’t a single course I’ve taken in all these years and all these tens of thousands of dollars spent on education, where I could take the method they taught me, trade it according to their rules, and make money!

NOT-A-ONE!

Does that mean all those courses were bogus?

Nope.

You can’t trade someone else’s rules. You must find your own style that fits your personality, risk tolerance and ability to “see” what the markets are doing. We’re all individuals, and trading is not a team sport. It’s a very individual endevor.

  • Some people are by nature more comfortable with risk than others.
  • Some people have aggressive personalities, and others are more laid-back.
  • Some people need to be actively trading or they get distracted and miss trades.
  • Some people like to sit and wait until the perfect opportunity arises.

In addition, there’s something to be said about “discovery.”

If you discover a trading rule or nuance yourself, you have a much better feel of that than if you simply try to adopt someone else’s rules.

Ultimately, we each have to find our own way … but the path can be lit by those who have gone before us.

You Can’t Handle The Truth!

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In the movie “A Few Good Men” written by Aaron Sorkin the following dialog takes place in a courtroom as Tom Cruise questions Jack Nicholson on the stand:

Jessep (Jack Nicholson): You want answers?
Kaffee (Tom Cruise): I think I’m entitled to them.
Jessep: You want answers?
Kaffee: I want the truth!
Jessep: You can’t handle the truth!

The film was made 15 years ago, but I’ll never forget that scene. First because it was so dramatic and second because those words, “You can’t handle the truth,” have applied to so many situations in my real life.

In trading I have students who come to me after attending course after course, reading book after book, and working with indicator after indicator. Yet after years of this they’re still searching for the “truth” of how some traders are able to be successful while they continue to fail.

The funny (or “sad”) thing is that the “truth” doesn’t reside where they think it does. They continue to look for new chart patterns, indicators, techniques, etc.

But success comes with money management and psychology.

Now I just shared with you the secret.

Will it change your trading success? Probably not, because you’ve heard it before and you “think” you already know that.

Odds are, the average trader may have “heard” it before, but they aren’t DOING it. Why? Because it doesn’t meet their expectations and it’s not an exciting solution.

Here’s another little secret: If you’re trading well, it will feel more boring than exciting because most of trading is waiting, waiting, waiting for the primo setup to occur. That can take a long time, but you must keep your attention on the market so you don’t miss it.

Most amateurs’ expectations of trading success is way out of whack with reality.

I once had a trader of a $10,000 account tell me that if I couldn’t help him make at least $5,000/month he would consider the course a failure!

50% per month!

I told him it wasn’t going to happen and sent him on his way. I didn’t even try to explain it to him because his expectations were so far in outer space that he couldn’t hear me.

And this is very common.

  • Amateurs over-estimate realistic returns
  • Amateurs under-estimate draw downs.
  • Amateurs look for answers in the market instead of in themselves.

So that’s the truth (if you can hear it):

Instead of seeking new indicators, put that same effort into learning proper money management and self-management (trading psychology) … and you just may find the “Holy Grail” of trading!

OUCH!

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S&P 500Today was the worst sell-off in the stock market in many years. At one point the DOW was down over 500 points!

Is this a disaster?

I don’t think it’s necessarily a disaster. Compare other times on the chart when the market had similar “falling off a cliff” days and it should ease your mind.

Was there any warning?

Nothing predicts or forecasts what the market will do in the future, but there were 2 markets that may have given a bit of a warning. I traded both of these markets to the long side, and it’s worked out quite well.

Real EstateThe first market is REAL ESTATE. Everyone’s been waiting for the “bubble” to burst. Multitudes of people used creative financing to get into houses they otherwise couldn’t afford. But low interest rates have prevented those people from getting hurt.

While being tempted to short this market, there simply haven’t been any good shorting opportunities from a technical analysis point of view … until last week. The iShares for the Dow Jones US Real Estate Trust finally put in a potential shorting pattern ahead of the major stock indexes. See the chart to the left.

BondsAnd then there is the BOND MARKET. In a previous Blog entry (February 6, 2007) I demonstrated the Relative Strength measurement that can be used to compare 2 markets (not to be confused with the “RSI” indicator.

In a recent Video Newsletter, I showed how the Bonds and the S&P were beginning to shift (the Bonds picking up strength in relation to the S&P.

This week we see the further result of that first clue!

The S&P 500 dropped like a brick and the Bonds have moved up aggressively.