Market respects a prior swing

Take a look at the chart below, this is what I use for the ABC to D set-up I designed (this is using a derivative of Robert Miners techniques, namely his APP method of projecting future swings. [Please note, This set-up is defined clearer and in more detail in my soon to be published Money Manual]

The thing to note is that point D (along with other points between points C&D – not shown or detailed) were projected at the time the market made point C!  It’s only since that the market has filled the space between C&D.

I wanted to show you this example as the market obviously replicate 100% of the swing A-B – Hopefully food for thought for you to study and research further.

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Meetings with Fund Managers

In a previous life I used to be an IFA (Independent Financial Adviser), one of the aspects was helping people to invest their money for varying periods of time – a great responsibility and if you read my page on Buying and Holding you’ll realise that your Investment (time) life plays a very important part.

One of my major concerns I had was how to identify the right time to invest and the impact of investing someones money and then a market crash occurs – reducing people’s investment through the actions of the market.  If that could be avoided how would it help my clients investments, personal lives and investment lives?

To me the answer was obvious – Sit out the market crashes & significant falls.  (In the UK at that time the only options for investment were funds focused to the long side – NO shorting available)

Now if these fund managers are/were as smart as they made out and market wizards then if they could predict the upside then the downside was also predictable – right?  Wrong.  A massive wrong!

How come?

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Why bother using a Stop-Loss?

The real key to this I reveal in my Money Manual (yet to be produced, but working on) but the real reason to employ a stop-loss strategy is to get you out of a position when it’s obviously not going as planned.

Answer this question:

  • Do you possess the power, skill and knowledge so that 100% of your trades always make you money?

If you can honestly answer yes to that question then you don’t need to use a stop-loss.  If you’re only 99% right on trades then I’m afraid you need to use stops, along with all the others that aren’t 100% successful.

Think about this scenario – You have no set of rules for buying or selling, you just do it based on gut feeling – You manage to buy the dead high of a market with half of your available funds, from that point onwards the market slides downwards.  At what point do you get out?  How do you know that what is happening now is not the start of a 5 year bear move?  How do you know that the reaction is nothing but a tempory reaction and new highs will follow – at what level do you place a stop?  If this is a new bear market are you going to ride it out?

It’s that simple.

What is a Stop-Loss

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The ongoing FTSE100 trade

How did it turn out?

As planned is the short answer.

The long answer is as follows:

First of all can I just say that I do NOT usually trade this index – I DO trade the individual stocks that form the overall index though – What I wanted to do pre-christmas was pick a market, any market and show you that by applying basic analysis just using Fibonacci levels and the DTosc, we could identify possible bottoms and potential target zones – all BEFORE price actually got to those levels – the key word here is BEFORE/PRIOR/IN ADVANCE etc

The actual levels are detailed in prior posts, If you remember we were originally using the 8 period DTosc to enter the trade – when we did we got stopped out – yes we ALWAYS use a stop-loss – When this happens it tells us that maybe the 8 period DTosc is not the correct settings (If you insist on using set indicator settings then occasionally you will come un-stuck, as the markets are not linear, they evolve and move which means that you have to be flexible with indicator settings you use).

OK so we were stopped out on the Bullish reversal of the 8 DTosc, at that time we need to re-evaluate our analysis – is the trade still displaying what we want to see  or has it completely ruined our analysis?  If the analysis has been discredited then we simply walk away and leave well alone as the criteria for entry is no longer there.

But this trade was still perfectly ok – the only mishap was the failed 8 period DTosc. let’s take a look and see what actually happened – we entered a long position on Friday 16th December following a 8 period DTosc BULLISH reversal, the market then fell and stopped us out – all key Fibonacci levels were still being respected so the trade was still a go,  but focus really needed to be moved onto the 13 period DTosc as well as the 8 period DTosc, as it was possible the 8 period DTosc was not the correct settings to use.

We STILL have our support zones and potential target zones in place – although the target zones need to be recalculated from the bottom.

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Welcome to 2012

Happy New Year and I hope you all had a great Christmas holiday.

This is the first blog posting of 2012, the aim is to produce one new post per week, however, at times it may run every 2 weeks or so, if you’re signed up by email you’ll always receive the posts as they’re posted – I am still working on the predictions blog post, I’ve just not had much time over the Christmas break to devote to it and I’ve not forgotten my promise to my Facebook fans of revealing a key secret – I’ll post within the next 2 weeks without fail.

The trade entered and stopped out prior to Christmas (FTSE100) was re-entered during the Xmas break and is still open, I’ll update with charts in a seperate posting – but the trades already profitable and that profit is locked in by way of a stop loss, so off to a winning start in 2012 already, but more importantly it shows that my rules and trade strategy worked.

I had a great time over the Christmas break, I always take extended leave to spend with my family over this period – well to be honest, it’s in the hope of severe snow, so I can get out on the sledges with the kids!  No snow at all this year though!

I have also been reading some really great trading and investing books that I will review in due course – some of which I’m happy to add to my Recommended Reading list – keep a watch for the updated list over the next few weeks.  Click here to view/buy

I’m not making any major changes to the way I trade in 2012, however, I am embarking upon a tough and long journey starting right now (Well I actually started over Xmas) for the next few years I’m going to study and try to understand/learn the works of W.D. Gann – will it work – I don’t know but it’s one of the last areas I have to learn and study so let’s see.  Gann mentions in a few of his books that the market moves in sections usually 3-5 sections – this fits in nicely with the Elliott Wave Principle so I’d be surprised if the two don’t merge somehow along the way.

I’m fairly conversant in the Elliott Wave Principle and learning that has helped me to understand the markets, if you get chance it is a great addition to have – there’s plenty of links to EWI on this site just click on them to sign-up for FREE to the Club Elliott Wave (or click here) – you’ll then automatically receive interesting and thought-provoking reasons as to market positions, news events etc – well worth the effort of signing up for free and if following that you wish to study Elliott Wave in greater detail then the books and courses are great value for money.

Thinking of the Elliott Wave Theory – it is a damn good reason to explain that markets move 5 steps forwards, 3 steps back but over the longer-term that’s why and how civilisation grows and betters previous generations.

Over Xmas I also read Bob Prechters “Socionomics” books – I’m 100% a convert! – There is no doubt in my mind that events are driven by social mood – NOT events happening and social mood pertaining from those events!  The anger surely has to precede the Riots?  that’s what generates the Riots.  It takes a few readings, but after a while it all starts to make sense and I’ve actually used my tiny socionomic knowledge for part of my 2012 prediction.  I’m updating his Socionomic books into my Recommended Reading section – even If you just looked at the pictures! You’d see how everything fits together.

If this interests you (this is a brand new science and way of understanding the markets) then here’s a link to get you started CLICK HERE – this link takes you a 60 min documentary on Socionomics – well worth an hour of your time as it helps pice together events, mood and stock market positions!

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