Increasing Your OddsMarket & Sector Review
This Week's Economic Reports
Hot Market Scan Presentations -> The Market Scans are now presented utilizing frames. A top frame which is the header and a bottom frame which is the scan for today. The frames presentation will allow you to scroll through the stocks without losing the column headers for your ease of use. We will hopefully have this applied to the daily trading reports on ETF's, Groups, and Indices soon, the challenges with these reports, however are quite different.
CHECK IT OUT TODAY!
Increasing Your Odds
Trading is a profession where you can often times find yourself working against the prevailing odds. It's not like anyone can walk in off the street and start making profits on a consistent basis. Unless you take evasive action against adverse market forces, you may fall victim to overwhelming odds. Skilled traders, however, know how to put the odds in their favor, and you can too.
Trading brings out two emotions, self-doubt and overconfidence you need to balance these two emotions carefully. Newer traders are usually optimistic at first, that is quite normal, but they soon find out that trading is difficult. The markets are in many respects unpredictable and winning streaks often turn into losing streaks. The original overconfidence easily turns to disappointment and self-doubt. Avoid becoming too pessimistic or you'll never be able to pick yourself up and try again. What usually happens, though, is that you become overly arrogant to protect your ego. You may try to psych yourself up and try to beat the odds. Thinking optimistically is useful, but you must use your optimism effectively. Don't arrogantly think you know how to trade before you've built up the necessary skills. Don't take unnecessary risks and think that you can beat the markets with shear will. Persistence without the proper amount of skill will get you nowhere. You must study, practice, and learn in order to build up the necessary level of skill to trade consistently. Set learning goals, rather than performance goals. In other words, reward yourself for learning techniques at first, and when you're ready, you can set an overall profit goal.
Acknowledge your risks up front. Trading involves risk and learn to admit it. Traders try for the big profits, and they are ready to take the risk and the responsibility. The difference between the professionals and the amateurs is that risk is carefully managed. Since you're trying to capitalize on winning odds, it's vital for your survival to anticipate a string of losing trades. That means looking at the risk to reward ratio before entering a trade, making sure that you have a large enough account to take the risk, and if you don't, reduce your position size to suit your account or stand aside and wait for a trade you can take. Risk management is a trader's secret weapon, and you must use is to survive over the long haul.
Finally, you must use reliable trading strategies. This is so much easier said than done. You can't expect to profit if your trading strategy is flawed. But it is hard to know when it's flawed or just not working because of less than optimal market conditions for that strategy. All the trading books and experts warn "Don't abandon a trading strategy prematurely." It's not wise to jump from strategy to strategy, but what's "prematurely"? Based on probability theory, even a winning strategy can produce a string of losers and a severe drawdown, so sticking with a sound strategy too long when it's not working is going to wipe out your trading account. The best you can do is decide how much of your trading capital you will risk on the strategy up front, and if you lose that predetermined stake, move on. Trading is challenging and unless you are prepared, there are forces that put the odds against you. With the right mindset and proper risk control, however, you can move the odds in your favor, and achieve consistent profitability.
Market & Sector Review
People, including myself, are fascinated with analyzing market averages and attempting to project them into the future. While I personally find this to be fun unless you are trading indices or their derivatives this type of analysis can prevent you from making money, because we will have a tendency to sell to soon or buy too late basis the short-term wiggles of the averages. The real name of this game; in addition to risk control and money management; is stock selection. This is true whether we are in a bull market, bear market, or as we are presently in a go nowhere sideways consolidating market.
One of the reasons I like to look at and consider the weekly charts first, is that is where the overall intermediate to longer-term picture is displayed. And that is the picture and the trend I personally choose to trade. Looking at the above 3-year charts, do they look bearish? Not yet! Conclusion to all this; we are either building a massive top or we are consolidating here for another leg up to new highs on the S&P above the 1500 level (2000 Highs). This is genius, don't you agree? A very simple way to see when we have shifted from a bull to a bear market is to watch the 200-day (or 40 Week) as well as the 50-day moving average. Have they crossed and are they moving lower or just flat? As of now they are still rising, give the bulls the benefit of the doubt here while we wait for the market to decide its fate. Patience is a virtue and cash is a position!
While not delving into individual stocks at this point, contrast the major averages performance with selected Industry Groups and ETF's (chart below). Of 209 Industry Groups 105 or 50% are plus on the year and 89 or 43% have outperformed even the NYSE above. 107 (60%) of 177 ETFs followed are up on the year and 68 (38%) are up greater than the best performing average above. Whether you use it or not, this site continues to be re-designed and re-engineered to make it easier for you to spot strong as well as emerging Industry Groups and/or ETFs that are and will outperform the averages almost regardless of what the future has in store for us. There is an old market cliche' "There is always a bull market somewhere."
It should be no surprise to anyone that the top performing ETFs and Industry Groups involve energy. Crude Oil continues to make new all time highs, sometimes it seems as if nothing can stop it. However it is interesting to note that Heating Oil as well as Unleaded Gas (not what you pay at the pump but the futures) as well as the energy stocks are currently not following suit. In the past these have been excellent precursors to sharp drops in Crude Oil(usually with a 2 to 4 week lead time), and a sharp correction is certainly in order here. In fact while I consider energy to be in a long-term bull market due to ever increasing demand for a depleting resource, I am of the belief that we may get a correction in this sector that will surprise most and give us attentive folks another excellent buying opportunity in this sector, but not now. In fact it is the current weakness in many of the oil stocks that is responsible for a good portion of the indices moves to the downside as they were responsible for the move to the upside. However, ponder this weekend what happens if the energy sector does undergo a major correction, what that will mean for the economy as well as other sectors?
This week Alan Greenspan spoke once again and basically (If I understand him) will be targeting asset prices (read real estate) and continue to raise short term interest rates. The Greenspan conundrum if you will is why are long term interest rates declining in the face of rising short rates and in his talk on Friday I thought he was attempting to jaw bone the bond market down. It not only did not but it appears that long rates may be attempting to test there recent lows. This combined with an Oil decline could spark the next rally, that in my humble opinion will tell us whether this bull market continues to new highs or finally puts in that elusive top.
Concentrate your efforts on groups and sectors instead of the major averages find out what is leading and what is emerging and concentrate your efforts there. Look at what is strengthing in this down market and also look at what is weakening, your future leaders and laggards I think are contained in this picture.
Have A Great Week!BillDisclaimer:Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.
