How To Be Right 80% of the Time
Friday, October 5, 2007 | Teeka TiwariRating:
Risk is a funny thing; everybody has a different way of measuring and determining it. Some go with their gut, some trade off magazine covers, but the majority of individual investors use CNBC as their personal risk barometer. If the hosts are in good cheer, then all must be well in the world of investing; if the hosts are serious and dour, one must exercise caution. At least it seems that way.But as we all know, very often the exact opposite is true. That is, when the market looks the worst is when the market is usually at its lowest risk point!
My PointandProfit.com and ETF Master Trader subscribers know exactly what I am talking about here. We do our biggest buys when the market is at its weakest. We generate almost zero buys when the market is at its strongest!!
Sounds crazy, right?
It’s my experience that the strongest looking markets are actually the highest risk time to buy stocks. Remember that the stock market is a leading indicator, and it will discount future events usually 6-18 months before they occur. So when the market is slammed into oblivion, it has already priced in the future expected negative event. That is why when the negative event actually takes place, the market will usually rally.
It rallies because the negative event has now occurred and is no longer a threat looming over the market.
It wouldn’t be a leading indicator if it discounted past events, now, would it?
Remember, just like in life, looks can be deceiving. When I first shuffled into Lehman Brothers back in 1988, by outward appearances I must have looked very odd with my polyester tie, pink polyester shirt and unfinished gray pants that dragged on the floor.
But there was a broker there who saw the nascent value in me and took me under his wing as his trainee. Inside of a year and a half, I had made him over half a million dollars. That was my “tuition fee”, paid to him in business I generated while he taught me the ropes of the brokerage business. The same way he saw past my outward appearance, he started me on the road of looking past the market's outward appearance.
If you do not possess an empirical way to determine risk levels in the stock market, then you will never achieve any meaningful measure of consistent financial success in your trading.
I can’t stress this enough. My entire world changed when I finally “got it” that I could choose when to pull the trigger on a trade and “Let The Game Come to Me”. That by only trading when the odds were heavily stacked in my favor, I could dramatically improve my success rate.
You know what?
The proof is in the pudding. Over the last year and change that I have been running PointandProfit.com (my trading newsletter), 73% of our closed trades have been closed at a profit. If you include open positions that are currently profitable, our success rate jumps close to 80%.
It’s nice to brag about big numbers like that, and make no mistake, I am bragging! But the bigger point is that our success at Point and Profit is directly attributable to the system we have in place used to identify risk in the stock market.
This generation of stock market investors is faced with money-making opportunities of historic proportions. Think about the early investors in America’s industrial revolution, and you will begin to get an inkling of how big I think this global wealth boom will be.
This is why we have decided to reopen membership in ETF Master Trader next week.
In ETF Master Trader, I outline in painstaking detail my exact approach to measuring risk in the stock market. My ETF Master Trader members are shown exactly how to identify the lowest risk, highest reward time for putting on new positions.
While the course is geared toward ETFs, the fundamentals it teaches can be used for individual stocks, as well.
We are now at a critical time in both ours and the world's stock markets. Yes, we have had a very nice rally, but many lingering fears and doubts persist about the “credit crisis.” We are at new highs on the DOW, but I don’t see anywhere near the same sense of jubilation that we witnessed before.
Even more important than the subjective views of market psychology, looking at the hard data, we are nowhere near as overbought on the technicals as we were the last time the DOW crossed 14,000. The bottom line is that I expect much more upside out of ours and global markets. My opinion is that any selloffs will be short term in nature and should be bought.
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“Let the Game Come to You.”
Teeka Tiwari
Chief Investment Officer
Point & Profit
