The Traders Journal

My Top 12 Takeaways from ChartCon 2014

It was wonderful to see so many familiar faces this past weekend at the ChartCon 2014 Conference.  I know I walked away a more energized trader with a handful of new tactical options and strategies and a number of tradeable ideas I’m presently working through.  

Listed below are some of my favorite takeaways from the conference.  They are by no means a greatest hits list of the conference, but just what I personally found interesting.  If you couldn’t make it this time around, I would wholeheartedly encourage you not to miss the next ChartCon event.  Enjoy!

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Evidence-Based Trading for Dummies

Robin Griffiths, the renowned technical strategist, once opined that “Trading is a traffic light system.  At a traffic light, you wait for it to turn green and then you go.  You don’t try to predict when it’ll go green.

Unfortunately, far too many investors believe that to achieve success in the stock market one must become supreme master of the crystal ball by creating a complex methodology that will predict where the market is headed.  In reality, this is the absolute antithesis of what market wizards will tell you.  For that reason, I think Robin’s metaphor is spot on.

At a traffic light, you sit patiently with your foot on the brake; when the light turns green, you hit the gas and off you go.  It’s straightforward, and the average Joe who drives generally follows this program.  You don’t try to predict when the light will change; you simply respond appropriately when it does.   

There you have it – my trading methodology in a nutshell.  Occasionally, I do remind myself that I’m not in the business of trying to divine the market’s direction.  I’m in the business of reacting to it.

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How I Get Re-Energized as an Investor

Donald Trump was quoted as saying “Get going.  Move forward. Aim high.  Plan a takeoff.  Change your attitude and gain some altitude.  Believe me, you’ll love it up here.”

I will admit that in the middle of summer, my passion for the markets ebbs.  As I talk to my trading friends, I know I am not alone with respect to a  summer slump.  It’s just human nature.  My solution to this personal seasonality has been to participate in some sort of investment conference or seminar that will let me network with other investors belly-to-belly and help kick-start my investing goals for the fall when I once again amp up my trading activities.  Over the years, this “it takes a village” approach to investing has worked well for me.  

I’m reminded of a humorous quote by Zig Ziglar.  “People often say that motivation doesn’t last.  Well, neither does bathing—that’s why we recommend it daily.”  Much like bathing, I read Investors Business Daily every day.  This morning for some reason, my eyes gravitated to their regular feature entitled “10 Secrets to Success”.  It’s a shame but I often breeze past this feature in my quest for tradeable news.  Today, however, as I’m working on my two ChartCon presentations, I read the column in detail and it was a catalyst that re-energized me.  I thought I’d share this morning’s “10 Secrets” in the hopes that they have a similar effect on you.

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Tradeable Insights from the Past Quarter: Tensile Trading ChartPack Update #4

One of the highest leverage activities – if not THE highest leverage activity – that investors should focus on is to organize their routines, analysis and portfolios in a manner that maximizes tradeable opportunities.  Some investors will bump about for decades before they achieve a system that effectively analyzes the markets and identifies the best high probability trades.  The major benefit of reviewing the Tensile Trading ChartPack is that it will literally jump-start your organizational paradigm and save you years of trial and error.

This update is the fourth since we released the Tensile Trading ChartPack (note all ChartPacks include free updates for one year), and I must admit that my own trading has profited in unexpected ways.  For example, the simple routine of systematically reviewing each and every one of the 40 Fidelity Select Sector Funds to identify the equities that this Wall Street powerhouse has purchased and sold over the past quarter continues to yield tradeable insights.

In this update, Fidelity portfolios GR-420-12 through GR-420-88 show all the new equities Fidelity accumulated over the past three months for all 40 Select Sector Funds.
For your ease of use, new equity additions to their top 10 holdings are starred with double asterisks (**) next to their names.  The previous quarter’s new purchases were starred with a single asterik (*).

It is my opinion that all investors, regardless of skill level, would profit immensely from an analysis of stocks both purchased and sold by the mighty Fidelity portfolio managers.  By reviewing the last quarter’s activity or months April 1st through June 30, 2014,  
the charts literally teach you how Fidelity executes accumulation buying campaigns and distribution selling campaigns.  

I would encourage you to do your own analysis of the stocks that are double starred (**), but I will share ten of my own observations.  Make the effort and you’ll find the lessons and insights of real value.

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Bob Farrell: 10 Timely Reminders from a Wall Street Legend

As markets make new highs, investors often befriend a dangerous new companion.  He’s the greedy little devil that sits on your shoulder and whispers in your ear – assuring you that this market will make you wealthy as he coaxes you to buy more and ignore the naysayers.  

As I write this blog, the S&P 500 has soared nearly 300% since March of 2009 while other markets are also hitting new highs.  Without entering into a debate about market timing, I feel it might be prudent to revisit the sage advice of Wall Street legend Bob Farrell who had a front-row seat to a number of epic go-go markets in the late ‘60s through some brutal bear markets until he retired at the end of 1992.  These are ten of Farrell’s most famous observations:

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Memory Tricks for Investors

As Oscar Wilde aptly said, “Memory is the diary that we all carry with us.”  It’s July 4th, and I’m coaching kids about timing and firecrackers.  Not too different from coaching investors about timing and selling equities.  Most grownups have learned from experience -- perhaps some more than others – that once you light a firecracker, there is a certain period of time for which it is safe to hold it before tossing it off.  Exceeding the safe holding period will cause all sorts of pain.  

My point is that kids have to learn this timing thing.  Many will push the holding envelope and at some point be caught with an exploding firecracker in their fingers.  At this point, memory comes into play.  Next time, most kids will remember to toss it off sooner rather than later.  By the time you are an adult, your memory tells you when to safely hold, light and toss a firecracker.  

Your equities demand much the same timing.  I strongly suggest you use the same timing memory for investing.  Granted as you mature you begin to appreciate memory for the gift that it is because you start losing it.  With diminished skills in this area, your timing will suffer and therefore your profitability as well.  The best antidote to these senior moments, I believe, is threefold.  

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The Most Important Question Every Investor Must Answer!

Have you ever met a famous investor at a cocktail party or event, taken his or her advice on a stock and lost money?  You are not alone.  It may have been a sensational timely trade and the famous one made a 30% gain in four weeks while you held it an entire year and lost money.  Therein lies the crux of the problem.  Same equity but two different trading timeframes.

The reality is that we all are comfortable with investing on different time horizons.  Ask yourself this question:  “How many trades do you generally execute in a day, a week, a month, a year or every decade?”  My point is that while a conversation between a day trader, a position trader and a long-term investor may be academically interesting, it will not be profitable for any of the three parties.   They are simply not on the same timeframe page.  

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The Probability Buster Chart: Improved & Strengthened

A powerful profit-enhancing tool has just been refined and put on steroids.  Back in December of 2013, I wrote a blog titled “Possibly the Single Best Visual Analysis Chart Ever.”  Bill, my good friend at Stockcharts.com, is an exceptional developer, and he figured out a way to make this tool easier for us investors to use while at the same time bolstering its clarity and visual value.

In lieu of rewriting the previous blog, I’d just encourage you to reread it.  The beauty of the new syntax is that saving this chart in template form to be used again and again becomes a breeze.  We no longer have to look up symbols for sectors or industries because the program does this for us.  Simply type in “$SECTOR” or “$INDUSTRY”, and voila!   If you pull down the “Legends” menu and click on “Verbose”, the charts give the full label descriptions, too.  Very cool.

The chart below illustrates a top-down analysis strategy, beginning with the market and working down through the sector, industry, and to the individual equity.  The objective is to align trends by putting the winds of probability at your back.  Your likelihood of achieving a profitable trade increases significantly when the equity’s sector is outperforming the market, its industry group is outperforming its sector, and the stock itself is outperforming both its industry group and the market overall.

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Invest Like You Drive & Put $$$ in Your Pockets

I spent the weekend with my friend Dan, a prison chaplain, who always seems to have unique and useful insights.  This visit was no exception.  Yes, understanding the parallels between prisoners and investors will put money in your pockets.  Here is his insight on decision making amongst the two populations.  

He observed that some of the first time prisoners he sees are people who make a poor choice or decision, end up in jail and are subsequently scared straight – meaning that they learn from their mistake and don’t make bad choices again.  The repeat offenders, to the contrary, are people who continually make bad decisions and don’t seem to learn from their mistakes.  It’s as if they’re driving down the highway of life and looking only at the car in front.  Seemingly, they see each decision and event in life as independent, stand-alone occurrences when in fact all decisions inevitably have ramifications.  Think of this in terms of drivers on a highway.  Most reasonable drivers are looking four to five cars ahead so that if a sudden problem occurs, the red lights of car #5 ahead will issue an early warning before brake lights ripple down to car #4, #3, #2, #1 until finally demanding their car come to a stop.  Repeat offenders in the prison system don’t seem able to grasp consequences of today’s actions because they aren’t looking ahead down the road of life, so to speak.  

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How the Markets Have Changed Me Over 25 Years: Part II

“It is good to have an end to journey toward; but it is the journey that matters, in the end.”  -- Ernest Hemingway

And quite a transformative journey it has been.  Previously, I shared a number of the key lessons and changes I’ve experienced as I’ve evolved through all five investor stages – from novice, to advanced beginner, to competent investor, through proficient trader and finally emerging as a self-disciplined expert trader. Below you’ll find nine more observations.   As American entrepreneur Jim Rohn aptly said, “Discipline is the bridge between goals and accomplishment.”

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