Trading Stock Market Direction – When To Go Long and When To Take Profits – Investor Question

Stock market Direction - When to go long

Recently I received an interesting email from an investor who frequents Fullyinformed on a question regarding long-term investing. I thought I would share his questions and my answers for interested investors. Here is his edited questions:

Teddi, I think that things are getting very powerful and quite unnerving.   Although I want to go long, as I so totally believe in your sentiments and yet I am also seeing some pretty good moves on the short side in these past sessions. A short setup (SP Futures) that I have is quite incredible in that it shot downward within 30 cents. Fibs obviously do not work all the time and we have a manipulated POMO desk trading the SP futures and it is quite apparent to me that this short was technically FILLED. Now, the question is:  can the Fed and their ilk pump this (market) with enough liquidity to stop the bleed off.   If the recent past is repeated, longs (short puts) will be working well again.

Market Direction and Nerves Rattled

The market direction is definitely worrisome to a lot of investors as is the Federal Reserve’s Quantitative Easing program. The inability of investors to be able to go long in this market concerns many because we are taught that value exists and that buying a stock, holding it for growth and earning dividends and capital gains should be the normal method of investing. Indeed few investors actually trade commodities or currencies directly but instead prefer to buy stocks, bonds or ETFs and then check their progress weekly, monthly, quarterly and many annually. The whole idea is to buy an asset and just let it grow. This in my opinion does not work for most investors.

Manipulation Of Assets

Your comments on manipulation are well taken. Manipulation of every type of asset class is an every day event. For many investors this adds to the lack of confidence in investing in stocks.

The Key To Successful Investing

I believe that the key to successful investing has always been to set up specific goals and then apply strategies to reach those goals. Investors need to understand that they cannot just buy an asset like a stock or ETF and then “hope” it all works out and there is a nice pay-off when they want to cash out.

The 1970’s Recalled

When I started investing in the 1970’s brokers did a great job of convincing me where to place my money and how to spread it out among different asset classes.

I bought into the stock market in 1971 and 1972 after the crash of 1970. Brokers told me this was now the “safe time” to invest since the crash was over and stocks were reaching new highs.

The Safe Time To Invest

I felt safe investing since the crash was over although I did notice that my stocks only were moving up slightly in value. Nonetheless I thought the brokers should know what they are doing as this was their “business”. You can see in the chart below the monthly pattern of stocks from 1964 to 1980. I have marked the crash of 1970 and where I bought into the market at a “safe” level.

market direction 1970s

Two Stock Market Crashes In 4 Years

Within two years I had lost half of my capital and my brokers told me I should get out. They handed me the excuse that “no one was making money in the secular bear market” we were in. You can see in the chart below that the brokers told me to sell out near the bottom low in 1974. This was the second crash in 4 years and investors and brokers were running for the exits.

market direction crash of 1974

Enter The Mentor

That is when I turned to a mentor who was making his living through investing in stocks at a time when supposedly the secular bear market was “killing” everyone. My mentor is the one who advised me that every asset, whether bond, ETF, Stock, currency, commodity and others have patterns which are easy to develop strategies around to determine when to go long and when to simply trade and stay cautious.

The very first thing my mentor showed me was that patterns were infinitely tradeable if the right strategies were applied. He explained that while the majority of investors were like me, taking huge losses in the supposed secular bear market, he was doubling his capital several times by following the pattern of the S&P 500 itself.

He opened up a chart and showed me the low point for 1966 when the S&P 500 got down to $73.20. He then told me that this was his buy point and that any movement of the market direction below $73.20 was a buy signal for him once the market direction exhibited a pattern of high highs after any sell-off.

Using his method I should have sold NOT bought stocks in 1971 and 1972 and I should have been buying stock in 1974 NOT selling my stock.

market direction buy and sell

He then went on to explain various methods to select other points to buy in and how to use a stop-loss to sell shares as stocks moved higher into his “Sell” range.

Going Long Based On The Ranges

My mentor showed me how through following past patterns I could determine “buy ranges” to know when to commit capital and when not to. This meant that after any correction, as the market direction rose I could follow along through a buy range strategy to determine whether the buying range would hold. This allowed me to be able to follow large uptrends but to know when that uptrend was ending. In other words, I used these ranges to commit capital long-term and then knew when to stop committing capital and instead looked to selling positions.

The Remainder Of This Strategy Article

The rest of this strategy article is for members. It looks at methods used to time when to buy into the stock market and when to exit the stock market. Using products such as the Ultra ETFS both 3X and 2X can generate significant profits for investors who learn the timing methods used to enter and exit for trading the stock market direction.

This strategy article is 2500 words in length and will require 12 pages if printed. It is for FullyInformed Members.

Trading Stock Market Direction – When To Go Long and When To Take Profits – Investor Question






 

Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. You always trade at your own risk. The author assumes no liability for your investment decisions. Read the full disclaimer.

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