The Tycoon Report

Rely on ONE Indicator and You'll Lose BIG TIME!

Tuesday, July 8, 2008 | Chris Rowe

Did you check out my market wrap up video yesterday afternoon?  Every Monday evening at 6:30pm est. I give you a quick 5 minute peek at the recent market so you can quickly find out what's going on, and sometimes even how to profit from it.  Talk about speedy guidance!  Click here to watch yesterday evening's video (but be sure to come back!)

Based on lots of e-mails I've received lately I thought that, below, I should post a couple of pages that are in the booklet that comes with the CRISS program.  It's extremely important.  But before you read it, check out what we're doing:


My marketing & product manager have asked me to remind you that we have only a few remaining spots for The Trend Rider and a couple of copies left of my investing educational course – CRISS.  If you are interested in trading or learning how to trade options along side me, then I invite you to join The Trend Rider, my premium trading service.  If you would like to learn my approach to investing and have me teach you step-by-step how you may also attain an 80% win-rate, then you may want to pick up one of the few remaining copies of CRISS. 

By the way, at the request of some who would like to try out both products, we’ve bundled them for you here.


Now to go over THE most important aspect of investing.

Synergy
 
noun
The working together of two things (muscles or drugs, for example) to produce an effect greater than the sum of their individual effects
 
Put another way, the whole is greater than the sum of its parts.
 
The most successful investors are the ones who can completely eliminate emotion from their actions.  They never look at the stock market as a gamble, but more like a business.  Therefore, they only take positions when they know that the odds weigh heavily in their favor.
 
How Do I Increase the Odds Of Success?
 
Think about the way a doctor diagnoses a mysterious health problem.  The doctor evaluates the patient’s symptoms one at a time, and, based on several different clues, comes up with a diagnosis.  The doctor doesn’t base the diagnosis on one single clue, but a number of clues taken together which either all or mostly point to the same thing.  (Have you ever left the doctor’s office feeling uncomfortable because he or she didn’t seem to ask you many questions before giving you the solution to the problem?)
 
Any doctor who treats an unusual health problem based on one single clue is likely to recommend the wrong treatment.  On the flip side, the doctor increases the odds of a correct diagnosis with each clue, symptom or indicator.  Since health is such a serious matter, doctors have to take this synergistic approach of patient evaluation.  The patient might decide to take it a step further and get a second and third opinion.  This approach is used for the same reasoning that a doctor finds numerous clues before recommending treatment: to increase the odds of success.
 
The second and third doctor that the patient sees might even say that the first doctor is absolutely wrong, which might save the patient from an unnecessary surgery.
 
Your health is more important than your wealth, but your wealth is also a very serious matter.
 
Just as a doctor increases the odds of a successful treatment by using several different clues, you can tremendously increase the odds of a successful trade by using one indicator to confirm what another is telling you.  And the luxury that you have when diagnosing a stock which the doctor doesn’t have, is the choice to walk away from a situation if the clues don’t add up.  
 
How do we do it?
 
When reading a chart, a common form of synergy is to look to see if the volume is confirming the validity of the price action.  
 
Another synergistic approach would be to see if the long-term picture (trends, support and resistance or moving averages) is confirming what the shorter-term picture (trends, support and resistance or moving averages) is telling us.
 
We might use momentum indicators to confirm what the chart pattern and volume are telling us.
 
After momentum indicators and volume confirm the stock price action, we might consider seasonality.  For example, we would consider whether we are in a time of year that’s typically strong or weak for the stock market.  
 
We might cross reference that information with how strongly the peer group (industry group) is performing.  
 
We might also consider which year of the 4-year election cycle we are in.  
 
We might also use breadth indicators to gauge the health of the market.  
 
We may even take it a step further and look up the investor sentiment readings.
 
When using one indicator to confirm what another is telling you, be sure not to use indicators that are similar.  For instance, you wouldn’t use one momentum indicator to confirm what another is telling you.  You wouldn’t use one breadth indicator to confirm what another is telling you.  Instead, you might use a breadth indicator to confirm what a momentum indicator is telling you. Don’t worry if this is over your head right now; you’ll get it soon.
 
Remember, no indicator is perfect.  The more confirmation you have (the more differing indicators are saying the same thing); the more odds are stacked in your favor.
 
A common mistake is made by the student who learns the “magic” of one indicator and gets so excited that he or she runs out there and uses the one indicator to time all trades.  Inevitably, an expensive lesson is eventually learned.  Don’t make that expensive mistake.  (Learn from mine.)  
 
If you don’t feel that you have overwhelming odds of success, then don’t get involved.  Think about it:  if you are sitting on cash instead of stock while the stock market moves 8% lower, then you’ve just beaten the market by 8.7%!

Please let me know what you think about this by adding a comment by clicking below!


“Profit from the Trend”

Chris Rowe
Chief Investment Officer
The Trend Rider