I’ve been trading the market for over four decades.
I started when I was just 19 years old. Soon, I was managing money for some of California’s wealthiest residents. By the time I was 42, I was able to retire.
So, what do I credit for my success?
Well, it boils down to a bit of talent, a bit of luck, and a bit of knowledge. That knowledge includes an in-depth understanding of technical analysis (TA).
Technical analysis is simply a way of using patterns formed by market data (by studying price and volume) to identify trends and project future price movements.
But, it’s much more of an art than a science. If you try to force it to conform to strict rules and formulas, it’ll be wrong almost all the time.
Instead, try thinking of TA the way I do – a chart of a stock (or index) and its technical indicators is an emotional picture of the stock at a specific moment in time. If I can go back in that picture and find a time where the conditions were similar, and note how the chart behaved afterwards, it can provide strong clues as to what to expect in the future.
But TA is emotional… It evolves. So, conditions that used to provide a catalyst for a big move or reversal may need to get more extreme to cause a similar movement the next time.
Think about it this way…
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When I first got married, I’d often come home from work, take off my socks, and drop them on the floor next to the couch in the living room. My wife would come home, see my socks on the floor, and get all ticked off about it. This happened over and over again.
Eventually, though, my wife got a little better about dealing with her slob of a husband, and I got a little better about not leaving my socks next to the couch. Leaving my socks on the floor no longer elicited the same reaction from my wife.
She still had the same emotions. But she had adapted. She had evolved. She would need a bigger catalyst before getting upset with me – like when she found a dozen pairs of dirty socks tucked underneath the sofa.
Here’s my point…
A lot of my trading strategy revolves around finding emotionally overbought and oversold conditions that are ready to reverse. TA helps me identify conditions where investors’ emotions have gotten extreme, and where I can see how stocks have reacted to similar conditions in the past.
And in the weeks and months ahead, we’re headed towards a market environment that’s only happened twice in the last 50 years…
It’s a market that moves between overbought and oversold conditions on a regular basis. In fact, it’s neither a bull nor bear market, but rather a “zero-sum” market, where stocks move between the two extremes for longer than you could imagine.
Many investors have grown used to stocks moving higher seemingly every day over the past year. As the market reaches new highs, so do investors’ emotions. Right now, they’re comfortable. But, that’s a bad place to be…
That’s why last week I held a free online presentation on how you could double your money 10 different times in the coming weeks and months, without buying a single stock, to watch it just click right here… and prepare for this “zero-sum” market.
Best regards and good trading,
P.S. This “zero-sum” market is one of my biggest predictions in over 40 years of trading… but unlike the last times I was right about the market, this time it’s not going to be a crash. In many ways it’ll be worse… because it’ll be the death of both the bull and bear markets.
This move also explains why stocks like Apple and Netflix have gone nowhere for about a year… and why almost every other publicly traded company is doomed to the same fate soon.
I go more in-depth on all of this in my recent free presentation that you can watch right here…
How has following technical analysis helped you become a better trader? Do you rely less on emotions and headlines?
Let us know your thoughts – and any questions you have – at [email protected].