I am often asked how I have made so much money from trading and how I keep track of so many markets. For those that don’t know I trade a variety of markets ranging from commodities, currencies, bonds, shares and indices, but because of my trading style I don’t have to be an expert on a market to trade it.
Whilst many will spend hours reading reports, checking lots of data and fundamentals before opening a trade my style of trading requires now of this data. The number one concern for me is PRICE. If the price has gone from 50,55, 60, 65, 78 and 80 then I know we are in an up move and the trend is up. It does not matter what the press say, what the company director says, whether the P/E is 10 or 100, all I know is that if the price is steadily moving up then I should buy it and if it is steadily moving down then I should sell it short.
The question that everyone asks is, how long will this Bull Run last and is it too late to buy now? The first answer is, no one knows and I certainly don’t! Anyone that tries to predict a market or sell you a system that claims it will pick you a top or a bottom is a charlatan. All I can say is that if something is trending up as most indices are, then you have to be a buyer and go with the flow. Over the years I have seen many private traders commit financial suicide trying to buck the trend. Of course at some stage these markets will reverse, but as long as you have a decent exit strategy such as a trailing stop, you have nothing to worry about. The second question is, is it too late to buy? Again, if something is trending up or down (to go short) you have to take the view that until something tells you otherwise, that’s the trend you need to follow.
One of the biggest reasons people cannot make money in trading is that they find simple strategies to hard to follow. The truth is humans like to be clever, they want to second guess the markets and the only saying “if its that simple everyone would be doing it”, well the truth it trend following is easy, what’s hard is have the discipline to follow it.
Let me give you an example, look at this chart of Monterrico Metals which was up to 13th July 2004.
What should you do, Buy or Sell it?
We can see the chart has gone from £1.00 to £4.00 in around 12 months. Well many would say it’s moved up so far it’s “over bought” it cannot go higher. Some will say its time to sell take profits. What would a trend follower do? Well as a trend follower we take the view that everything we need to know is the price, we don’t need to know what the company does, whether its just had a big copper find, what the analysts
think, all we know is the price is moving higher and we take the view that trends continue so we would still buy it. Right now the price of Montterico Metals is over £5.80 so the trend continues up and who says that it could not move up to £7.00 or more in the coming months.
No one can tell you where a trend will end, I have seen trends go for months and years. Everyone likes to think they can call a top or bottom but that’s the easiest way to go broke. My honest advice is go with the flow, it easier and if the flow is up you should be with it.
At some stage this trend will change and by using a trailing stop loss you can make sure you lock profits whilst keeping the trade open. Trend trading reminds we of the Hare and the tortoise story, the hare being the trader that wants to be in and out of a share all the time, the Tortoise being the steady plodder that in the end wins the race.
You can find UK shares that are long term up or down trends by looking at the 52 week highs or lows. Of course it seems strange buying a share which is trading at its highest price over the last 52 weeks, after all should be not but low sell high? NO buying high and selling higher has been a great way to make money and you would be foolish to bet that this will not continue to be the case.
One of my trading techniques which I teach is buying 52 week highs and selling shares that are hitting 52 week lows. For most traders this seems a strange thing to do, after all should I not buy low and sell high? Well maybe the text book may say this, however, in the real world I have made a lot of money buying new highs and selling them higher. When a share/market clears a new 52 week high or an all time high we can take the view that something good must be happening. My experience shows that these markets and shares also tend to continue moving higher.
When should you Spread Bet? – Chart all your Options
Vince Stanzione says that trends repeat themselves over and over again, so you just need to learn what to look for.
Markets are often bullish on the last day of the month and the first three or four of a new month, possibly because this is when people’s pension contributions are invested by the fund manager, Vince Stanzione says.
Trends are repeated over and over, you just need to learn what to look for
The same holds true before market holidays in the US, including Memorial Day, 4th July, Labour Day, Thanksgiving and Martin Luther King Day, the third Monday in January, while September tends to be a good month to bet on gold.
Markets also often go up on Mondays and down on Wednesdays and Fridays. Find a source of market information that is easy to use and adapt (there are a number of charting sites listed on our financial directory section) and look for a stock that is moving Why? Because the spreads (the cost of the bet) tend to be tightest on shares that move and are bought and sold most. New highs or lows on a performance chart are a good sign. If the chart is moving upwards, look for a peak that is higher than for the last 12 months. Don’t try to get in at the bottom of the market or to pick the top.
Your chart system may allow you to apply rolling averages to charts. If the share or index moves above the moving average, you can consider buying. If it moves below, close your bet, or if you are feeling aggressive, sell short – a bet that the index or share will fall further.
Try using 200-day and 50-day moving average together on the same chart, using the 200 day average for buy signals and the 50 day to close bets.
A chart is a picture of what the crowd is doing. You should never be the first in, and never the first out. This means that you won’t make the maximum possible money out of a share price movement – you make your money on the bit in the middle, because its impossible to predict where the bottom is.
Trend lines – straight, sloping lines drawn between two or more prominent positions on a chart – identify the strength of the trend. A rising trend line drawn between troughs helps to identify ‘price support’, a level where traders will buy. A falling trendline between peaks helps to identify market resistance, a level where people will sell. The idea is to invest in line with the current trend until the price line breaks through it, or wait until the trendline is breached and then bet on a new trend.
In December many financial experts like to come out with forecasts and targets for the year ahead. I would strongly advise that you ignore these psychic predications, as crystal ball gazing is not the way to make big money in markets. Followers of this column know my style is to trade trends rather than predict moves. I use simple price charts to make a judgement whether an up or down trend is in progress and I bet with the trend until that trend comes to an end.
