Successful Trading In the Stock Market - One Thing

I have been helping people learn to trade/invest for nearly two decades, mostly by showing them when the “time” is right to be owning stocks or funds, and alternatively, when to be short or move to cash.

Those who stick around and take some time to learn, generally get it and do very well, what's puzzling however, are those who stay stuck, and would rather just keep watching.

It seems to me that they are also people who have learned to be “afraid” of taking action in other areas of life too. I can tell by their emails and excuses. Perhaps that's due to unreasonable expectations, or fear from costly past mistakes.

Consequently, they wait, and wait, and wait. They wait until the one time they feel it's perfectly safe to get in.

Unfortunately, that secure “feeling” couldn’t be more wrong. Their waiting has brought them to the precise time when smart money has begun selling their profitable positions to all late comers.

Rather than take responsibilty and USE methods that could really help them take powerful control of their future, many instead will ask if I would just go ahead and handle their money for them. No wonder fund managers make millions.

The amazing thing here too, is that fund managers tell me, as long as they don’t LOSE too much of the clients money, their clients will stay put, year after year, all the while managers keep making their 1-3% on accounts that aren't even growing. It’s crazy.

But it does point out pretty clearly to me, that desire isn’t enough. Learning isn’t enough. Believing in the outcome isn’t enough. Being prodded isn’t enough…

I think successful investing/trading boils down to this one thing: You've got to do “it” as if you had no choice. Do it for real, or die, perhaps.

Maybe like a new skydiver, who was just nudged out of a plane…

Pulling the ripchord to the chute isn’t an option, or something to “think about”, or to learn to do anymore. You just do it. If all goes well, it’s going to be a lot easier next time…

Trading Online

As I stated in this morning's commentary, when short term (yellow line) and momentum cycles (cyan line) are deep in the lower reversal zone (-80 to -100), it's usually a good time to enter a long position.

A +200 point up day on the Dow and +38 points on the NASDAQ's a good reason why we like play these "mini-cluster" bottoms when the appear on the Market Forecast charts:

If you bought the QLD or DDM at yesterday's close, or early in the session today, you've got some nice profits to lock in with stop loss protection. Consider using the Donchian channel center line on a 30 minute chart as a first tier stop (39.52), and the bottom of the channel as a second level stop (39.10).

If you haven't subscribed to our service yet, get a 30 day free trial and learn to how to trade the stock market with daily forecasts and trading advice from it's author - Stephen Swanson.

Visit us at: www.themarketforecast.com and www.themarketforecast.com/Video1.html for an introductory video on some very cool stock trading techniques.

History Remembered

Financial Historian on ‘29: ‘Great Crash’ Vs. ‘Break in the Market’

Raising Cash 1929 Style (Everett Digital)

From The Wall Street Journal's MarketBeat, October 28, 2009

By Matt Phillips

[This week] marks 80 years since the best known part of the 1929 stock market collapse, a two-day rout on Oct. 28 and Oct. 29 of that year. The equities crash brought a painful close to the period of unbridled financial optimism that was the 1920s.

To mark the occasion, MarketBeat has been asking financial historians for their thoughts — mini-essays if you will — on how the Great Crash informs the way we think about the current market recovery. Today’s offering comes from Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University:

Because their teachers and their history books said so, most people know that the Great Crash of 1929 caused the Great Depression of the early 1930s. I am not one of these people.

What I know is that the Dow Jones Industrial Average closed at 306 the day before Black Thursday, October 24, 1929, and at 199 on November 13, three weeks later. That drop of 35 percent was the Great Crash. I also know that on April 17, 1930, the day before Good Friday, the Dow closed at 294, or 96 percent of its level before Black Thursday. In other words, almost all of the decline of the crash proper had been undone by a recovery of 48 percent in the Dow between Halloween ‘29 and Easter ‘30. Most people don’t know that, or if they ever did they forgot it.

On Good Friday ‘30, the New York Times referred not to the Great Crash, but to “the break in the market last Fall.” The Times that day also noted that the day before, April 17, “average prices worked higher and a few outstanding issues shot up smartly to new high prices for the year to date,” and that “British interests were investing heavily in these issues.”

The Great Depression began sometime after the spring of 1930, most likely when a lot of banks failed late that year. But the so-called Great Crash a year earlier had almost nothing to do with those bank failures, the first of thousands of bank failures that occurred from late 1930 to March 1933.

What’s interesting from the perspective of 2009 is that from September 12, 2008, the Friday before Lehman, to the low of March 9, 2009, the Dow lost 44 percent. The Great Crash of 2008-09 was actually a greater crash than the Great Crash of 1929. And half a year after the crash lows of last March, the Dow again is up about 50 percent, as it was half a year after October 1929.

Is the market’s recovery since March now giving us a better forecast of what lies ahead than it did in April 1930? Let’s hope so. Let’s hope, too, that people stop exaggerating the effects of “the break in the market” in October ‘29.

Indices rose on the day with momentum and short term cycles that expectedly began turning up. They ended the day right at their resistive 30 day averages (for the Dow it was also its 5 DMA), but based on the lack of selling into the close, we are likely to see some follow through with that line of resistance surpassed today.

That would correlate with the still rising shorter term cycles. Both the 6.5 and 10 day are starting to rise on our Filtered charts, and our regular Forecast charts both show they are in their advancing phase.

From here, it becomes important to see whether the move is going to be joined by a rising intermediate cycle, or whether we'll have a few days where the intermediate cycle simply moves sideways.

If so, that could be a signal of a further intermediate drop, similar to what we had after the 6/25 - 7/1 sideways move. Then, indices found support at their 50 day moving averages but never gained enough strength to vault above their 30 DMA on a closing basis.

Since so many technicians watch that 30 DMA, it's critical that it be reclaimed quickly or traders tend to start selling into the stalled action.

I am still long on this short term up trend.

I have a first level stop on the DDM at the center line of the Donchian channel on a 30 minute chart, and at the center channel line on the 60 minute chart. Should we see some extended upside on the short term today, where the 5 DMA is exceeded and starts to rise, I will begin to watch that as a third level for my stops.

In essence, whichever of those lines is highest is my first stop level, and whichever is lowest is my last.

As you can see, short term (yellow) and momentum (cyan) lines are pointing up today. Play it long with stops as described.

How bad was the 2007-2008 bear market?

"When equities bottomed in November 2008, the MSCI World index had fallen 55% –– a global loss of USD 21 trillion, or USD 21,000 for every individual in the developed world. This statement appears in the Credit Suisse Global Investment Returns Yearbook 2009. The Yearbook is a comprehensive and authoritative analysis of total returns since 1900 for stocks, bonds, cash, foreign exchange and inflation in 17 national stock markets and three worldwide indexes, covering Europe, North America, Asia, and Africa.

"In the Yearbook, the authors, Elroy Dimson, Paul Marsh and Mike Staunton, of London Business School point out that the last decade has been the lost decade for equity investors. Since 2000, the MSCI World index has lost a third of its value in real (inflation-adjusted) terms, while the major markets all gave negative returns of an annualized 

–4% to –6%."

Of course, the November 2008 low of about 7,450 wasn't the U.S. market low of the last two years--by March 9, 2009 the Dow Jones Industrial Average had dropped another 1,000 points to around 6,470. 

Read the entire articled at: 

http://docs.google.com/gview?a=v&q=cache:mxzWh0CxOJUJ:www.london.edu/newsandevents/pressreleases/pressreleases.do%3Fsection%3DEditRelease%26mode%3DgetAttachment%26releaseId%3D62%26attachmentID%3D54+worldwide+stock+market+losses&hl=en&gl=us&sig=AFQjCNHUAWkzCKkeJwKC_UUoceZUeEzChw

Many of you have been getting better results than those quoted here. Email us at support@TheMarketForecast.com and tell us how you did during the downturn.

Once more, something happening to our server... so I'll post end of day results here.

Thanks for your patience,
Steve

Server's are still down. Here's the end of day charts.

Steve