Sunday, March 13, 2011

Ad: The Secrets To Trading Success

First of all, you have got to have some sort of system that you can call your own (i.e., a system that you're comfortable with).

What's mysterious and hot right now in the technical analysis realm is "market cycles analysis". The truth is, cycles theories don't work better than other forms of technical analysis and they don't tell you exact tops or botttoms either, despite the numerous claims by many such practitioners. For many years, I've been peddled with Cycles Theory, Elliott Wave Cycle Theory, Square Of Nine Cycle Theory, and other numerous offshoots of cycles theories. They work and don't work just like anything else. Nothing more or less special. For if cycles theories have special powers, what kind of cycles theory predicts that the market goes up 70% of the time the last 100 years (which it did, by the way)?

None. Nada.

That means an average "simpleton" permabull does better in the market than any trader who uses cycles analysis, by simply staying long the market and buying the dip! So there's no special powers to cycles theories and they're more wrong than just being an average permabull (70% win rate) for life. I'm sure Warren Buffett realized that many years ago and that's why he doesn't believe in charts.

Technical analysis or cycles analysis, by themselves, don't work. For if they did, it would have been pretty easy to use them to beat Warren Buffett's multi-decade 23% annualized return.

Here is what will help make your system work:

1) Buy good bullish stocks (or stocks with staying power) generally, rather than short selling.  Historically, the market has gone up over 70% of the time; so swim with the tide.  You've got to let stocks reach their fullest potential (doubling, quadupling, 10-bagger, 100-bagger), but that will never happen if you're shorting stocks where your maximum gain can only be 100%.  A system based only on shorting stocks just isn't a viable system at all.

2) Pick a system, any system (or a combination of systems), that you're comfortable with and try to become proficient with it. Could be MACD trading, support/resistance, elliott wave, cycles theory, RSI momentum, or it could be a fundamentals-based system.

3) Pick one or two super billionaire gurus (someone who resonates with you) and follow and listen to their market thoughts. It could be Warren Buffett, John Paulson or Jim Rogers. It has to be someone who is "market-tested"-- one who made most of his big money thru investing or trading the markets, not one who made his millions from writing newsletters.  My personal favorite guru is Warren Buffett.  Most of the gurus are privy to private research information that you and I just don't have. They have done extensive research or have spent millions to hire people to do research for them. To not take advantage of what they have to say is foolhardy and potentially very costly.

4) Embed into your system... another system. This other system is a money management system or a money management philosophy and I discuss how to do this in detail in my manual.  This is an absolute must.  Without doing this step, your technical analysis system or cycles analysis system will likely fail miserably.  But with it, your system will become a really good system or a "best trading system".   

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