I am a private investor who like most people thought you can make easy money investing. After 2 years loosing 20%, I was frustrated so I decided to pay for professional advice. In 6 months I lost 50%!
One day I got an email from Zacks to go long and from Money Map to go short on the S&P! This is when I decided that I could save myself a lot of money by flicking a coin myself! I believe having an open mind has allowed me to combine various analytical techniques which are starting to pay dividends!
I started reading more about technical analysis, but all indicators that I found were based on price behavior, and as such is retrospective. All technical indicators have this flaw! I believe in cycles, what goes round comes round, and human behavior. I have been a long time follower of long wave theory, Kondratieff Cycles and am somewhat mathematically minded but also have pretty good pattern recognition. I researched Elliot Wave theory and quickly became aware of its limitations. You simply never know what wave you are in and with its endless possibilities with corrections, where some corrections can be higher than previous peaks found that to be useless. However I could see the 5 wave pattern repeating. Martin Armstrong’s Economic Confidence Model made much more sense and I devised a modified wave theory – MAP Waves, which so far since the October 11 lows have failed 3 times in over 120 waves on each of the following indices – DAX, ES, S&P, Russel, DJIA and Nasdaq on 3 time scales, Weekly, Daily and Hourly have resulted in stemming my losses.
However predictability was what I needed.
As a result I researched further and learned about Swain, Babston and Andrews work. Their principles were so simplistic and being a believer in the KISS principle quickly took to them. To me it was clear though that it was not the result of Newtonian physics, but human behavior! This same behavior also ties in with the 5 wave pattern seen so commonly in stock and commodity charts.
My 80:20 rule interpretation - Astute investors buy when they perceive value for money (10%), they are not greedy and sell to take profits – wave 1, and 2. Once prices reach value for money again they buy again, and word gets out so the crowd (80%) gets drawn in wave 3. Again astute investors get out when overpriced, wave 4, and when wave 5 gets underway those with the longest memories (10%) see everyone else making money so they get in and loose their money when yet again as the overpriced stocks find no more stupid buyers! Then the reverse happens, except faster, because people behave differently when they start loosing money – panic! Generally wave 3 is the biggest because of supply and demand. When more people are buying than selling prices rise quickly, and conversely when more people are selling than buying prices drop rapidly! Hence we go from extreme to extreme because of greed and manipulation, rather than using common sense of valuations!
Combining pivots from my wave counting method with pitchforks it became more predictable where the next pivots were likely to fall within a range. This coincidently also much improved what I had learned about trend line analysis as when the correct pivots are used they give good trend lines!
I started trading my system in December and in the first week I was flagged up as a pattern day trader on the NYSE after making 6 winning trades on the trot, They had no problems with me day trading whilst I was losing money! This highlighted to me the extent of market manipulation and closed shop This has been recently highlighted in Throw Them All Out which shows that this is true even at government level! And we in the west sit on our high stools and preach our hypocrisy of bribery and corruption to other countries! The bank bail outs have cost not just this generation, but future generations will end up paying the billions unless we get revolution first which is more likely if we follow history!
1 – DO NOT TRADE THE NEWS IT IS ALREADY PRICED IN! – Prices have already moved as long before the news comes out those privy to the news have already bought or sold! Read contrary opinions and CRITICALLY evaluate them. I find http://www.marketoracle.co.uk/ the best site for this.
2 – DO NOT TRADE HOT TIPS OR OTHER PEOPLES INFORMATION– They are given for a reason (even if it is only bad analysis) and generally opposite to the recommendation,
3 – GET TO KNOW YOURSELF - Make your own decisions and monitor performance. Learn from your behavior. A must read is Reminiscence of a Stock Operator
4 – BEFORE YOU BAIL REANALYSE – double check your analysis for mistakes.
5 – THE UNPREDICTABLE IS UNPREDICTABLE – eg Japan Tsunami – spikes quickly reverse into their previous pattern. That PANIC cost me a lot of money!