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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.

The Middle Way

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One of the keys to life is BALANCE.

St. Paul admonished people to practice “moderation in all things.”

Buddha’s teachings are summarized in the “middle way.” In his time people were seeking fulfillment through either extravagant hedonism on the one hand, or extreme asceticism on the other. He rejected both extremes.

Even when it comes to our health, we’re advised to have a “balanced” diet.

Balance is definitely a critically important key to healthy living: spiritually, mentally and physically.

But when it comes to trading … the market at a balanced position is the very worst place to trade.

The Value Area “Point of Control,” price oscillating above and below the 50 MA. These are examples of a well-adjusted, balanced market … and they are low probability trading opportunities.

The best opportunities come when the market is “off balance,” when it is not trading close to the mean.

When the market is in balance, it isn’t moving directionally.

Look for opportunities to trade “from the edge.” Off-balance markets provide superior risk/reward scenarios.

The Best of the Best

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Here’s a question I get all the time:

“Yo, Barry, what trading books do you recommend?”

I get this question so often that I decided to address it in this Blog for everyone to see.

I’ve personally read well over 100 trading books. A few were great. Most of them had something good. Very few of them were bad.

Books are a great place to begin when you start trading. Learn the basics, the terminology, the indicators, and play around with charts and watch the market yourself. Do all of this before you invest in personal mentoring.

Even now, I continue to read trading books. And I continue to pick up a good idea here and there … or sometimes I’m just reminded of something I learned, but had forgotten!

To answer the question at the beginning of this Blog, I’ve added a new page to my web site that includes my RECOMMENDED RESOURCES.

It includes my favorite books, charting software, data providers and brokers.

These are the ones that I personally use, so they really are my favorites.

My #1 recommended book is not the most popular trading book in the industry. In fact, I’ve been recommending that book for years now, and not a single person that I’ve mentioned it to was aware of it. So sometimes that best stuff is not the most popular!

Also, I tried to find the best prices on everything for you. Most of the books have options for you to buy them used and save a lot of money. Also I’ve arranged some special breaks, add-ons, or benefits for you with the brokers, software, etc. that I link to on my site.

Trading is expensive enough, so I’m trying to save you money in any way I can. That’s why my Trading Courses are so inexpensive too.

You can access my favorites here: RECOMMENDED RESOURCES.

Any Given Sunday

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The Super Bowl is over now (my condolences to all the Chicago traders), so this is my last chance to provide a football analogy for awhile.

There’s an ancient Chinese saying about football. It goes like this:

“Any given Sunday.”

It’s such a well-known axiom that a movie was even made about it!

It basically means, “Anything can happen on any given Sunday.”

The saying acknowledges that there’s a lot that happens in the sport that is beyond anyone’s control.

In the movie by the same name, Al Pacino delivers the unbelievably powerful “inch” speech. In it he tells his men that the entire game of football, moving up and down that 100 yard gridiron, comes down to fighting over any given inch.

Here’s just part of the speech:

You find out that life is just a game of inches.
So is football.
Because in either game
life or football
the margin for error is so small.
I mean
one half step too late or to early
you don’t quite make it.
One half second too slow or too fast
and you don’t quite catch it.
The inches we need are everywhere around us.
They are in every break of the game
every minute, every second.

On this team, we fight for that inch
On this team, we tear ourselves, and everyone around us
to pieces for that inch.
We CLAW with our finger nails for that inch.
Cause we know
when we add up all those inches
that’s going to make the XXXXing difference
between WINNING and LOSING
between LIVING and DYING.

I’ll tell you this
in any fight
it is the guy who is willing to die
who is going to win that inch.
And I know
if I am going to have any life anymore
it is because, I am still willing to fight, and die for that inch
because that is what LIVING is.
The six inches in front of your face.

And that pretty much sums up trading.

We’re constantly aware that the market is a wild animal, and it can do “anything at anytime.”

Our job is primarily to manage risk by fighting over every tick.

And so it is that by applying professional athlete quality self-discipline, perfectly managing our money, never getting sloppy or lazy, and fighting for every tick of every trade, that over the days, weeks and months, we find profits.