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Every Million-Dollar Trade Starts Here…
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It's impossible to overstate the importance of viewing the financial markets properly.
It's the difference between staying the course during volatile times or being "shaken out" of a winning investment right before it charges higher again.
That's why we place so much importance on shaping your understanding of the physics of the markets (sometimes even more than we do on individual trading ideas).
Unlike the ever-evolving financial markets, education and skill are not moving targets...
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The Most Important Factor to Understanding Price Behavior
The world's greatest market technicians say: "The best indicator of future price behavior is current price behavior."
And that begins with a fundamental truth: "The trend is your friend."
When charting stocks, exchange-traded funds, futures, commodities, currencies, or ANYTHING, identifying trend lines is where it all begins.
Trend lines are at the heart of every million-dollar trade idea.
The trend is the direction in which the market is moving. The market’s trends are characterized by a series of zigzags that resemble a series of waves with peaks and troughs. The direction of those peaks and troughs is what signifies a trend.
There are three types of trends:
- Uptrends.
- Downtrends.
- Horizontal trends.
An uptrend shows a series of higher peaks (highs) and higher troughs (lows). A downtrend shows a series of lower peaks and lower troughs.
A horizontal trend (aka, a neutral trend) shows horizontal, or equal, peaks and troughs, and reflects a period of indecision. This is also called a consolidation phase.
Stocks or indices trade sideways as the bulls and bears slug it out. Eventually, the previous uptrend or downtrend continues or moves in the opposite direction.
Relationships Among Trends
As you study charts, you’ll find that many different trends can all exist at the same time. Some trends tend to overlap each other. And there are trends within trends within trends.
For example, after identifying a long-term trend, you’ll find intermediate-term trends within it.
Zoom in, and you’ll find short-term trends within the intermediate trends, and so on. In other words...
Every trend is a small part of the next larger trend.
Many investors make a huge mistake by failing to realize how crucial it is to identify the trend appropriate to the time period they’re trading in… as well as the next larger trend.
This "holographic" view of the market is key, because the larger trends have a major impact on the smaller trends within them.
Therefore, whatever trend a trader uses for timing purposes (intermediate, short-term, etc.), he or she must always trade in the direction of the next longer trend.
Say you had to guess what the weather will be like in three days from now. Knowing what's happened in the past few days (short-term trend) certainly helps.
But knowing what season you're in (medium-term trend) will easily help just as much. And knowing what part of the world you’re in (long-term trend) helps too.
If it was 55 degrees over the past three days... BUT it's February and you're in Buffalo, NY... you should probably think twice before predicting it'll stay 55 degrees!
Zooming In and Out
You can profit from a security's decline with bearish moves like short-selling a stock or buying a put option.
On the flip side, you can profit from an advance with bullish moves like buying a stock or a call option.
Smart investors will buy a security—or an in-the-money call option on the security—when the market is oversold in an uptrend.
They can sell short a security—or buy an in-the-money put option on the security—when the market is overbought in a downtrend.
Using very simple options strategies, it’s just as easy to profit from stocks or indices that do nothing but trade flat as it is to profit from an increase or decrease in volatility.
Repeating myself is probably even more annoying for me than it is for you. But I can’t stress to you enough how important this is, so I’ll repeat:
When viewing any chart, it pays to zoom in and zoom out:
- Zoom out to identify the direction of the next larger trend, and the next one after that.
- Zoom in to time the best execution on the trades.
Where to Start
The best way to approach the trading process is to start with the long-range charts (with a timeframe of several years)... and then work inward, toward the shorter-term charts (like one-year, six-month, and three-month charts).
It's also helpful to start with monthly and weekly charts for the longer-term view. Then check out the daily chart, which will be the chart you base your trading decision on.
Then, for even-more-precise timing (i.e., finding the best time of the DAY to enter your trade), check out the intraday chart.
Checking the intraday chart is especially useful when trading options. That's because a 2% movement in the stock could mean a 10% difference on the option.
The definitions of the different trends’ timeframes are somewhat fluid. Let’s start with the three basic trends we’ll be focusing on:
- Near-term trend (aka, short-term trend) = Days to weeks...
- Intermediate-term trend = Weeks to months...
- Long-term trend (aka, major trend) = Months to years.
Profit From the Trend
Remember this law of physics: "A body in motion tends to stay in motion... until a force or obstacle impedes or changes that motion."
Experience shows that a similar principle acts on stock prices (by acting on human behavior).
The main benefit of charting is that it lets us identify trends early, and then act on them by trading in the direction of that trend. The idea isn’t to try to anticipate what the market will do next, but instead to simply go with what the market is currently doing.
Your focus should never be on why the market is doing what it’s doing, but on what is occurring. It should be on where prices are in relation to the current trend.
Too many traders try to anticipate or guess what the market’s next direction will be.
But charts show us the market’s current condition. They reveal pictures of bullish or bearish psychology. Inertia does the rest by tending to keep things moving in the current direction.
Human nature doesn't change. This is why, when it comes to charts, history repeats itself. And that’s why the key to coming as close as we can to knowing the future is in understanding where we are in relation to the past.
The investor who can correctly interpret exactly what the market is saying, and act swiftly, will only become more and more comfortable and confident with experience.
Once you've identified all of your trends, your next step is to identify certain key levels on your price charts.
We'll say more about that in another conversation.
Before I go, I want to make sure you know about [the FREE event I'm hosting next Tuesday, July 28th at 1 PM Eastern](.
During the presentation, I'll show you my 3-step method for wringing maximum profit out of every trade.
[Click here to save a seat](.
Trade safely!
[ChrisSigFile]
Chris Rowe
True Market Insiders
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DISCLAIMER
The information contained herein has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. True Market Insiders LLC is not an investment advisor and is not licensed to give specific financial advice. The chairman of True Market Insiders, Chris Rowe, is also the CEO, CIO and owner of Rowe Wealth Management LLC, which is not owned by and is not the owner of True Market Insiders.
Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable (“information providers”). However, such information has not been verified by True Market Insiders or the information provider and TMM and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein. TMM and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded). Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice. Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products. This document does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.
Unless otherwise stated, performance numbers are based on pure price returns, not inclusive of dividends, fees, or other expenses. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. You should consider this strategy’s investment objectives, risks, charges and expenses before investing. The examples and information presented do not take into consideration commissions, tax implications, or other transaction costs.
The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.
Some performance information presented is the result of back-tested performance. Back-tested performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes to illustrate the effects of the True Market Insiders LLC strategy during a specific period. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon.
Back-tested performance results have certain limitations. Such results do not represent the impact of material economic and market factors might have on an investor’s decision making process if the investors were actually managing money. Back-testing performance also differs from actual performance because it is achieved through retroactive application of a model investment methodology designed with the benefit of hindsight. True Market Insiders believes the data used in the testing to be from credible, reliable sources, however; True Market Insiders makes no representation or warranties of any kind as to the accuracy of such data. All available data representing the full platform of investment options is used for testing purposes.