Upfront, it’s important to note that unlike most investors who hear asset allocation and conjure up three asset baskets (stocks, bonds, cash), Tensile Trading presents an exhaustive all-inclusive buffet of 59 different asset classes from which you choose. Our book also shows to what extent each of these various assets classes is correlated to the S&P 500.
Straight from the pages of my own trading journal. These are my charts from all the market corrections since 1981. Here’s why I want to share these with you.
The beauty of technical analysis is that it represents human emotions expressed by the buying and selling behavior of investors – emotions which are predictably repeated in times of crisis and have not changed over time. In the midst of the present correction, I find that looking back at these charts stops me from doing anything rash or stupid.
The reality is that markets operate within the law of groupings. This is precisely why I have formatted my unique chart view in a pull-down menu under ChartStyles. You simply click on “Gatis Roze” at the bottom of “Predefined Settings” and up pops the Tensile Trading analysis format that clearly shows the following:
This phrase is most often heard in reference to lawmakers and bureaucrats in Washington, DC, but I think it’s an appropriate reflection of what many investors struggle with as well. As an investor, you’ll seldom be destroyed by outside forces. If you falter and lose your assets, more often than not it will be because you ignored your own rules and disciplines, thereby destroying yourself from the inside.
It’s been my experience as a full-time trader over the decades that investing muscles need to take a vacation regularly. I’ve learned the hard way that vacations must be part of my money management routines. If I procrastinate and wait until I realize I need a vacation, the markets inevitably will have already told me the same thing in subtle ways. By then, it will have cost me money. My advice to you is to extract yourself from the investing-is-life box before reaching this point.
Charts I'm Stalking: Action Practice #19: Sector Funds & Their Top Holdings Offer Many Profitable Insights
It’s hard to believe but exchange-traded funds (ETFs) have been with us now for 24 years. Who would have guessed? Perhaps John Bogle.
As a rule, investors buy Sector ETFs to smooth out the ride and decrease volatility. The classic measurement of volatility is, of course, the statistical measurement of standard deviation which shows investors how far a series of returns swings from the average returns over a time period of their choosing.
Remember the bygone advertisements from years past about hair replacement? The gentleman stares into the camera and says “I’m not just the president of the Men’s Hair Club, but I am also a client.” Our ChartPack deserves a similar endorsement. “I’m not just the creator of the Tensile Trading ChartPack, but I am also a daily user.”
Ninety percent (90%) of Americans believe that they are above average drivers. Multiple studies have corroborated this impossibility over the years. I’m certain that the equivalent surveys of American investors would yield a similar fanciful number.
It reminds me of Garrison Keillor’s radio show featuring Lake Wobegon — the fictitious midwestern town where all of the children are above average. My point being that most drivers and investors — like those Lake Wobegon kids — believe they are exceptional. When you have a Ferrari for a brain but brakes made for a bicycle, you are dangerous — whether driving or investing.
So, how did you stack up the equities of the Dow 30 based on Money Flow in Action Practice #17?
The first question you should have asked yourself is “what is my personal investing timeframe?” Clearly, a day trader would not analyze money flow the same as a position trader or as an intermediate-to-long term investor. The second suggestion I would make is to revisit your own knowledge set about Money Flow. An ideal place to start is the StockCharts glossary.
Have any of you ever found yourselves so overly focused on your individual positions that you are missing the market’s essential big picture? For profitable investing, maintaining a birds-eye view is imperative. This is what asset allocation is all about, and from the academics, we know that this provides the “biggest bang for your buck” in the investing arena.
Many investors’ backgrounds are such that they have been trained in their professional lives to focus on the individual details The downside of this is that by devoting a disproportionate amount of their time and attention to singular equities or by fixating on the narrow specifics of an individual ETF, they might fail to see that it’s only a branch of an individual tree and neglect to realize that it’s part of a larger forest (i.e. the market). You need to step back on a regular basis and maintain a little better perspective from a broader vantage point.
Something that I’ve witnessed with a number of investors is that they meet a broker they like, and they buy some trees (i.e. equities). They then meet another broker or two, and repeat the same process. Before long, they have assembled a random collection of trees and have no idea what their personal forest exactly looks like and they can’t see any rational investment strategy.
For precisely this reason, my own ChartPack is organized to encourage and help investors begin their market analysis utilizing the three big picture “Permission to Buy” ChartLists.
The bottom line is that investors must not get enthralled or overwhelmed by the details and minutiae to the point that it obscures their ability to discern overall market shifts, larger trends and the broader money flows of sectors and industry groups. That is where the big money is made. Don’t lose sight of the forest!
Trade well; trade with discipline!
- Gatis Roze, MBA, CMT
- Author, Tensile Trading: The 10 Essential Stages of Stock Market Mastery (Wiley, 2016)
- Presenter of the best-selling Tensile Trading DVD seminar
- Presenter of the How to Master Your Asset Allocation Profile DVD seminar
- Developer of the StockCharts.com Tensile Trading ChartPack