Big A with ETF Trend Trading
Everyone has an opinion on the markets these days.
- It’s the end of the bull for financials just the start of the bull for commodities (or vice-versa).
- Short bonds because inflation is about to come roaring back.
- Short the dollar because the Chinese will soon dump their dollars and that also means
- Be long commodities priced in dollars as producers demand a real rate of return and the emerging markets consume their share.
Any rational person can make a case for these scenarios but, as traders we need to ask ourselves,
“Can the market moves based on these beliefs be anticipated and traded profitably?”
If interest rates go down before they go up, or commodity prices decline in the near term, the market will make a fool of the prognosticators and take some substantial amounts from the pockets of those who’ve bet real money on their cherished beliefs.
That’s why I prefer to trade with the trends and let the charts, not the opinionators, tell me when it’s time to short bonds or go long the dollar.
Because, once a long-term trend turns, we will have many opportunities to buy high and sell higher (or sell low and buy lower).
Yeah, I keep one eye on the events that drive market participant’s emotions and actions, but I reserve most of my trading time for looking at the charts and spotting current trends in a wide number of markets and sectors.
It may be obvious, especially to anyone who’s had a few economics classes, that U.S. interest rates must go up (who’s going to continue to loan us money at negative rates of return?) but when and how much can easily mean the difference between blowing-up your trading account or having the funds to jump onboard once the move starts.
I don’t trade on what may happen sometime in the future. I trade on what’s happening now – as the charts tell me, not some talking-head on CNBC. And I suggest you do the same if you plan to keep trading for very long.
This is “Your Biggest Trading Mistake Ever”: trading the future instead of what is in front of you right now. You can “invest” in the future, but not “trade” it. If your last ten years of mutual fund investing has not worked out the way you planned you might want to consider ten minute per night trading instead.
But, you may ask, what happens when the trend reverses? Don’t you get taken to the cleaners?
First off, let me remind you that losing trades are as much a part of the game as winners. In fact, with the right risk controls, we can make net profits even if we have more losing trades than winning trades. That’s because we use a position sizing method to minimize losses and maximize winners along with stops and targets that offer an attractive risk-to-reward ratio (RRR).
If you’ve ever been right about a new trend, but just a bit too early, proper trade sizing and RRR will let your account survive to trade another set-up when the trend really takes off. Combine that with the skills to read the charts and accurately identify the trends instead of trying to predict the future and you’ve got the potential to be a real pro trader (even if you only trade your own counts).
It’s like that in almost every financial market. A couple decades (!) ago I bought into a real estate market that was down 15% – in a very attractive place where real estate had historically outperformed general inflation rates.
Well, that market went down another 15% over the next 5 years (but my family liked living there, thank God) before it recovered to what I had paid in about 1 year – the start of a new bull market in the area’s real estate. I moved upscale in the same market and rode the rest of that up-turn (7 more years) to a 167% gain (on the more expensive property) when I sold near the top of the bull market.
Had I been forced to bail out during the first 5 years (poor potion-sizing), I’d of lost about $10,000 instead of making over $300,000.
Today, we see a lot of people who can’t keep the houses they bought near the top of the cycle because they over-extended themselves and don’t have the financial resources to ride it out. The trend is currently still down in most areas for residential real estate.
That’s why I like trading ETFs rather than real estate, generally. The trends are easy to identify, easy to test and have excellent Risk-to-Reward Ratios. Plus the time in the trade is much shorter. My ten minute per night system is usually in for only one to eight weeks per trade.
Now I really do believe there will come, perhaps soon, a bear market for bonds and some commodities AND we’ll make some juicy profits because we’re watching for the opportunity to trade a trend reversal. But rather than blow our accounts trying to be right, let’s take the trades with today’s trends (even long bonds) and wait for the short trade opportunity later.
Helping you retire on time,
Big A
800-743-0385