Stock charts are often misused by the masses. It’s one thing to draw a line on a chart, it’s another to understand what it means. And of course it’s an entirely different thing to understand multiple aspects of technical analysis at one time and actually find the type of picture you’re looking for.
Even that is not enough, you need money management and many other things. That means steady income adding to the account, proper allocation, hedges against losses, exit strategies, leverage where applicable.
If you can make money in stocks trading, it’s worth using options. If you can’t make money with options, it’s not worth trading.
Listen to me very carefully as I chomp on a bag of doritos and drink my ice tea. Making money in the stock market is never easy. When you think there’s nothing but “easy money” in this market, you’re probably in for a disappointment.
Here’s a few “charts” for you to chew on.
source: images taken from elliot wave international independent investor ebook found at
http://www.elliottwave.com/club/protected/pdf/Investor_eBook.pdf.
Economics in real life is supposed to show demand go UP as price goes down. But this contridicts that showing that emotion rules logic.
I don’t know if you need any more evidence than that that “the herd is always wrong”. Although mutual funds may show returns, personal accounts show a worse story as people often do not buy at the lows and sell at the highs.
It’s really strange. People justify how other people are acting as a reason to buy stocks as sentament continues to decline along with stocks. It’s only after sentament gets so bad that no one cares about using that as a reason to justify getting long and all the money drys up that it’s worth buying.
That’s what makes it so darn difficult. Not only do you have to “do the opposite” you have to wait until no one else is doing the opposite and you are the only one left.
Of course, within the longer term picture, there are shorter term moves. This allows you to buy from overly pesamistic sellers, and sell to overly optomistic buyers.
That is only one theory behind trading the stock market.
Take a look at a few overbought/oversold indicators,
When the market is overbought, there will be a buying opportunity later at lower prices if you can manage to hold through the storm. Sometimes you will see multiple sell signals as stocks go higher. This is usually an opportunity to sell more and perhaps consider going short. But that’s only if the general context of the market fits that of a market that is oscillating. Volatility must generally be higher. This is another reason why march to april showed several sell signals before it finally worked. The volatility index continued to drift lower. The market will inevitably go from a trending market to an oscillating one. As the Vix gets really low, it can be a “buy” as a hedge to your longs, or you can simply start to tighten the rope on your longs and be more likely to factor a “sell signal” as an actual sell. There are often contradictions. For example the stock markets in june trade above the 200 day moving average. However, this did not indicate a high probability buy as the markets were overbought, nearing the edges of the bolinger bands, AND the volatility index was high. After the initial head and shoulders there was a larger one within this pattern. It was slightly less reliable because markets were not overbought and instead nearing oversold and the lower edges of the bolinger bands.
Recently we saw some resistance at the down trendline after the head and shoulders formed and resistance of the 30 day moving averages, and the markets declined, only to rally to overbought above the 30 day line and face resistance of the 200 day moving averages. The problem is with the vix heading lower again, and the market recently making a higher low, this could be just a small sell off in another uptrending market. As such, lower conviction should be placed in sell orders, you should consider buying the VIX as a hedge, and selling more gradually on the way up. It will be interesting to see if the 30 day moving average acts as support providing another buy signal, or if we break through and it acts as a sell signal. This will help us better sort out if the market is still going to reach it’s target price formed after it’s 2nd head and shoulders breakdown in late June, or if it is going to instead uptrend for awhile, possibly to 1175. We also saw “three white soldiers” a bullish candlestick pattern and the RSI is trending up, indicating the potential for an uptrend. Being that the market has pushed itself beyond overbought only shortly after coming down from an overbought signal, I imagine the next breakdown is going to be fairly big, especially if the RSI climbs to oversold first.
In the meantime, cash remains king until you see otherwise, and if you are sophisticated, you may want to consider getting short or using inverse etfs or puts should the rally continue and another sell signal get triggered.
Generally a bearish set up right now but there still could be a wave higher extending this rally farther than many may expect as would be forecasted in either of these Elliot wave counts.