I am likely to repeat a few things from the Main Page here, maybe
other pages, too. They are important things worth
repetition.
Please review the Terms of Use.
We
are sharing ideas and opinions here as testimonial, not as advice.
The fundamental tenet of Technical Analysis is that Price Action
Discounts Everything (Known by Big Money). Markets do not
move, Markets Are Moved by Big Money. Big Money has access
to more information than you do. They are responsible for
more money than you are. They have rules for trading and are
accountable if they do not follow them. They are often forced to
make decisions based on customer demand; they must buy to commit
new funds in retirement plans and they must sell to liquidate
positions for redemptions, for example.
The Financial Media exists to confuse and befuddle the individual
investor. They are manipulated in subtle ways which will
mislead you. They have a need to provide an explanation for
everything that happens in real time, but are often wrong.
They do not have a good capacity to differentiate between
coincidence and causality. You should not be mislead
yourself by confusing things happening at the same time with one
thing leading to another. By the time it is clear what event
or information caused an unexpected price swing the whole thing
will be over.
Honestly, we do watch CNBC from time to time, but never ever ever
make trades based on information from CNBC. If we trade
something we heard about from any Media source it is because the
trade was supported in our technical analysis decision process.
News releases can cause volatility in the market, but unless the
fundamental picture of the economy (as seen by Big Money) changes
the response to news will be done in a day or two. So a
minor blip in economic news may cause a few managers to adjust
their positions, but it takes a series of reports with continued
changes on the economic picture to change the trend.
You must determine the difference between Price Fluctuations and
Trend Changes. Price Fluctuations are an opportunity to make
a low risk entry into a trade. Trend changes are a time to
adjust your positions to protect them and even take advantage of
the new trend.
The market may respond differently to news than you expect.
You should not trade what you expect, what you THINK MIGHT
HAPPEN. You should trade what is on the charts and plan
responses to what might happen, but not make a trade until your
rules tell you to make a change.
We are not day traders. Day traders can make use of
Financial Media and take advantage of short term price
swings. We do not discuss that here. For us a trade
that is opened and closed in the same day is most likely a losing
trade which triggered an entry and hit its initial stop loss in
the same day.
Based on our own experience and the teachings of one of our
favorite instructors along the way, each trading decision is based
on these approximate weights:
Volume is one of those things which many people use as an excuse
not to make a trade. For example, if you are looking at a
setup for a trade, the trend has been up, it is flagging to
support and is giving you a buy signal, but the volume is lower
than it was for the 3-4 days the stock was selling off in the
flag, so you decide not to take the trade... Then you just
said that volume is more important that Trend, Support and
Resistance, and Momentum. If that is what your rules say,
then great. But if you follow your watch list you will
realize this may not be the right thing to do over time.
Selling volume is often larger than buying volume - downside
volatility is often higher, too. When the trend resumes the
volume will be lower because the weak investors are gone and the
panic is over.
The stock market is a leading indicator of the economy. If
you wait for signs the economy is improving you will miss most of
the action in the stock market.
A trend will tend to stay in place until the fundamental economic
outlook changes. A single news event is unlikely to make
this change, but many consecutive news events can. A trend
change requires the breaking of support or resistance and unless
this breakout is observed the trend is intact.
Any price fluctuation or shorter term trend change is likely to
resolve in the direction of the previous, larger, trend. To
borrow from Star Trek: Trust the trend like a Klingon, until
it weakens and dies you can depend on it to do as it must. I
suppose to continue that thought, trust the market as you would a
Ferengi, it will do everything in its power to take your money
from you without remorse. I suppose that makes Hedge Fund
Managers to be Romulans... Or maybe Shadows... oh,
wrong series... Does that make the FED to be Vorlons?
This means that a consolidation or retracement in a larger trend
is likely to resolve in the direction of the larger trend.
Just because a candle or chart pattern indicates a reversal does
not mean the reversal is permanent.
Candle patterns tend to have scope over the next few candles and
nothing more. Chart patterns also tend to play out or fail
in fairly defined time frames. After all that plays out the
previous trend is still the most likely outcome unless Big Money
has re-evaluated its projection of the future economy.
Okay, let's go do Babylon 5 for a moment: Big Money is like
the First Ones... There are beings in the universe with
billions of dollars more than you or I. They walk the market
like giants on errands we cannot hope to understand, and if they
are aware of us at all it is as we are aware of ants...
We have used 3 Green Arrows (3GA) from Investools. We have
used the Market Tamer short and intermediate term rules. We
have seen various crossover strategies. We don't use them
anymore. Anything that is easy enough to teach in an
introductory lesson in the course of a day or so is probably
little more than a good place to start.
Crossovers and 3GA work best in trending markets and on trending securities. Without a trend, though, these methods provide signals which almost guarantee losses. Our experience is that examples chosen in workshops and classes discussing such strategies are taking the retrospective view: This price action has already happened. The really critical question to ask, though, is would my screening techniques have identified this stock in the past when its entry point for the example the instructor is showing me took place.
This goes back to a point I have made elsewhere: The ideal
search will reveal stocks which will score highly in 6-12 months
but probably do not score well now. Sure that stock shows up
on a search now, after it has made an amazing run following a
beautiful entry signal, but what was the score of that stock when
the entry signal happened and would you have chosen to trade
then...
3GA and Crossover strategies work if you have momentum on your
side. Without momentum they are a drain.
In late September 2011 we attended another ATA workshop from
Investools. It is the third time we have been at this kind
of class, and it is far more general than the 4-Day Live class we
attended the previous November. This class was also lead by
Dave Johnson, one of Investools most popular instructors, and I
genuinely think one of the best instructors for personal
short-term trading and investing that there is. One key
reason I say this is that his message has not changed since we
started listening to him in late 2007. While other
instructors are learning and looking for their own secret to great
trading, Dave really has his, and he teaches it most generously to
anyone who will listen.
We know all the things he is going to say, but really following
it all - as simple as it is - still takes some reminding from time
to time. As good as the message is, he also has great
stories. His stories are also teaching tools which help many
students remember his message better.
Soon after he started with Investools, he told us once, he was
told by management that he was teaching "too much bonus material"
in his talks... If you saw the educational materials at the
time, and if you knew what you were doing, you would realize the
course content was good information, but fell short in several key
areas of anything that would permit success to any but the most
gifted of students... When Dave got clarification of what
the "bonus material" was, in their view, he pointed out, insisted,
really, that it was not at all "bonus material" but that it was
really essential content which was inexplicably left out of the
course material. Eventually the content was updated...
I think Dave came to Investools at a very critical time.
Not just because it was about the same time we did, because we
never heard of him until late in 2007, but because the changes he
was bringing internally (though we did not know the source) to the
teaching and coaching at Investools were the very ideas which
helped us finally get over the edge and really start to get some
things right.
Being educated in techniques to help his students retain the
important knowledge, he tells the class that repetition is
important, but he cannot repeat the whole 2 day event the 7-9
times it takes to push something from short term memory to long
term memory, after all, it would take at least 14 days... He
says that all the information in the class is good information,
and worth learning, but with the really good information he may
repeat himself... Not because he didn't realize he had
already said a thing, but because that thing was so important it
was worth repeating once or twice for emphasis.
Talking with him after the first day, he told us that studies
indicate that for every 60 minutes someone is listening to a class
they will typically only really be listening for about 10 minutes
of the hour on the average. This is another place where the
stories come in - because while he diverges on a story people can
get in some of that "I'm not listening" time which the brain
really does need. It's hard to stay focused for 2 whole
days, after all.
Dave teaches with assertions and a few Blinding Glimpses of the
Obvious (BGOs), substitute Epiphanies if you like, which he shares
with the class, and also has a few of the students share their own
BGOs with the others.
One of the things he has his students do is, first thing in the
morning, with the morning hair and all, look in the mirror, look
in your eyes, and say with conviction (3 times), "I am a Great
Trader", and follow with "And a darn good looking one, too"
(remember, first thing in the morning) and follow with a hearty
deep laugh. Even as fake as it is, the laugh forces the
release of chemicals which make you feel better. This is
designed to help ingrain some positive thinking about yourself and
your ability to succeed as a trader, which really is important to
success. You have to know that you can do it, or you
probably cannot...
The first assertion he had us repeat was this: "Everything
I am going to learn in this class is EASY, AND
it requires repetition to fully remember."
Don't be greedy, take what your rules allow you to take and
realize the rest is not yours because you don't have the rules to
take it. Baron Rothschild: "I don't need the first
20%, and I don't need the last 20%, just give me the 60% in the
middle."
Awareness (with repetition) becomes Knowledge (with practice)
becomes Skill (with commitment) becomes Discipline (with
repetition) becomes Mastery.
Don't spend even 20 seconds a day watching a stock you will not
trade. In a week, for just one stock, this will add up to a
minute and a half, in a month it will be over 5 minutes. In
the course of a year this will be an hour. For 50 charts you
will never trade, having them in your watch list for 20 seconds a
day is over 2 days time wasted in the course of a year... In
deciding what to watch (for now) look at the chart and ask 2
questions:
Back when Investools gave you DVDs for $1500, maybe a weekend
workshop, and a few weeks of 30 minute calls with a coach, Dave
was assigned a new student who was a Nurse by profession.
She was motivated to find another way to get by because, being
exposed to sick people all the time, she was starting to get
chronically sick herself. After just a couple weeks she was
doing better than all his other students, and he asked what she
was doing - her response was "Eactly what you are telling me to
do." Her success continued and he was certain she had
figured something out that he might be able to use for education
to help his other students, again he asked what she was doing, and
again the same response. For a few weeks this continued and
then it finally came to him: She was a Nurse, by profession,
even personality, she will follow instructions exactly, she really
was doing exactly what he was telling her - which meant that ALL
of his other students were NOT actually doing so...
There was a fellow who was trying to follow 3 Green Arrows in a
down market with downtrending stocks. He had lost $50K doing
this and was upset with Investools, and life in general.
Dave had to start by asking him if he was willing to do something
different, to really change what he was doing. This is an
important comittment to make, without which the same progress
would continue... Once this comittment was made, the rest
was really pretty easy. Once he started trading with the
trend everything turned around quickly.
There are others, we'll add them as we hear them again...
When the market gives you an out, TAKE IT. -- How often
have you hung onto a position going bad and ended up wishing you
had dumped it 'back then' and cannot anymore...
Know your rules, and don't break them. -- Actually, that
evening, Dave pointed out that part of being a really great trader
includes earning a good instinct for when you need to bend them...
Don't be greedy, DO be assertive, take action. -- Enter
trades when your rules say to enter, Exit trades when your rules
tell you to get out.