It’s not hard to learn how to trade. The hard part is learning how to deal with the emotions of a trade.
Some people have analytical minds and some tend to have emotional minds. This is often associated with gender, as women tend to be more emotional than men; however that’s not always the case.
The point is that when you trade, many traders tend to make his or her trading decisions based on emotion rather than probabilities. When a trade moves up, emotional traders get excited and jump in, but they typically wait too late and get in after the trade has already exhausted most of the uptrend and then they get burned as the trade changes direction and moves down.
That’s where technical analysis comes in. Learning technical analysis is a must if you want to be a trader. Technical analysis paints a picture of the trade and reveals things you might not see when trading on the fundamentals alone.
Without understanding charts and how to read them, you might as well be playing the Lotto.
You don’t have to have an analytical mind to learn technical analysis, but it does help in understanding some of the concepts.
Technical trading teaches you when to get into a trade, when to get out of a trade and how to protect your profits. It provides a basis for a trading plan.
Fundamental analysis is the understanding of why a particular trade might be good from a long term standpoint and based on the conditions of the related market.
For example; what’s the probability of the trade being profitable due to the strength of the market and socio-economic conditions? If the overall economy is doing well, then certain stocks may also do well.
This can also be broken down into economic sectors. For example, if retail sales are doing well, then there is a good chance that a stock related to that sector will also do well. If there is an over-supply of oil in the market, the chances of energy related trades might become bearish.
The economic news takes on a whole new perspective when you become a trader. Political conditions, social and economic conditions can have an impact on your trades. It’s important for you to stay tuned in to the news and how it might affect your trades.
If the overall economy is tanking, you might want to trade positions that tend to be defensive. That is, tradesthat do well in bad economies. Inversely, when the economy is good, you trade things that do well during good times.
There are technical traders who don’t pay any attention to the fundamentals and just trade on technical probabilities. Typically those are day traders or short term swing traders.
I’m a swing trader as well as a long term position trader; therefore, I pay particular attention to what’s happening in the world and how it affects the markets. I like to time my trades 8, 10, 12 or more months out. I think that’s the best way to become a successful trader and the best way to build wealth.
I keep two different accounts. I have a trading account that I use to trade options and as I build that account up to a certain level, then I transfer funds into a long term investment account. I like to choose securities that pay a dividend or interest for my long term investment account for reinvestment and I buy actual stock rather than trade options because I’m looking for long term growth and stability. I still use trailing stops on my long term investments to protect any gain achieved during the time of ownership.
I have found this to be one of the fastest ways to build wealth over time. However, there is another way that tends to be much safer without the rollercoaster ride up and down of the stock market. I’ll discuss that in a later report.
We had an expected retrace in the Gold market this week. I say expected because the RSI and MACD were showing oversold conditions and we needed a retrace to relieve that pressure before moving on up. This has created a bull flag pattern (Blue Lines) and I expect the downside energy to be waning. Gold should resume its move back up next week.
A look at the chart above shows that we are in wave 3 of a 5 wave EW pattern. The solid arrows show minor waves 1-4 of major wave 3. When minor wave 4 bottoms, then minor wave 5 will resume to the upside to complete major wave 3. This should commence next week and top out sometime in November.
Stock Market Indices: (SPY) (QQQ)
The stock market and US Dollar rallied big on Thursday due to the ECB announcement of possibly more QE in the future. Also, among all the bad earnings reports from the majority of stocks, Google, Amazon and AT&T beat earnings estimates which was all the market needed as an excuse to rebound by the PPT.
The stock market is in extreme overbought territory as evidenced by the RSI in the chart below, plus it is about to hit a major resistance level (Red Line). Expect the market to be up again today, but watch out next week.
Energy Stocks: (XLE) (UNG) (USO) (LNG)
As I mentioned last week, if you took the short trade on Oil and stayed with it, you should have a pretty decent 2 week profit.
Oil crossed the 50 DMA (Red Line) on September 15 and has stayed above it ever since, bouncing along the edge and then rebounding back up. Usually when price moves above the 50 DMA, it’s a short term indicator of a bullish trend higher.
Oil just touched the 50 DMA on Wednesday and appears to be bouncing to the upside again. This may be another set-up for a short term trade to the upside. I would suggest buying some December or January Calls for a quick pop to the upside.
Financial Stocks: (XLF) (IYF)
It’s time to short financial stocks, the tide has turned and the devastation will be ugly.
Biotech: (BIB) (KITE) (IBB)
There is nothing in the biotech sector that turns me on at this time. I would stay out.
Commodities: (FCX) (JJG) (DBA)
Nothing new to report here either.
Richard Russell Warns Countries Are Now Preparing For A Collapse In Global Fiat Currencies And Panic Buying Of Gold
Expect A Waterfall Decline In Stocks And Panic Buying Of Gold