When making money becomes too easy.......
Momentum cycle is peaking when you can make 5 to 10 dollar in a day on a move. So the fun and game might be ending. My many statistical indicators like 65 day price movers and one month 50% plus are now signalling extreme momentum, which ends in substantial correction.
Momentum is cyclical. In late momentum phase like we are currently witnessing, the market goes in to frenzy. You will find several stocks with wide ranges. That is why most money is made in the last phases if you are a momentum followers. Yes risk of reversal is very high at such points, but risk management is for that.
In last 65 days 1300 stocks have been up 25% or more from their 65 days ago price. 310 stock were up 50% or more and 51 were up 100% or more. So no matter your methodology( even if you were technical analyst), you would have still made money.
It also depends on where you started becoming bullish on stocks. If you became bullish in August, you will be reaping rewards of the extreme momentum phase of the bull move.
Here is what I wrote on August 1, 2006
Some stocks set for rallies
The bearish propaganda machine is out in full force , denouncing the bull move and calling it a suckers rally. Calling those who made money during this phase as morons. After being persistently wrong for over a year, they might be right sometime , but is that a profitable methodology.Beliefs is all that matters to them, not making money.
Bearishness is a cult. It uses all the tools of cult building to seduce the followers. So many get sucked in, suspending their belief. Cult followers do all kinds of stupid things and have excellent justification for it. Cults are also built on creating alternative logic which is seductive and creates a alternative reality. Cult gurus are always very persuasive and have excellent arguments. For them the reward is ability to attract cult followers , not making money.
Just few months ago Barry Ritholtz was asking apprenticed investors to follow him. Many did. Now some of them are realising the folly. Couple of times some of those who followed his advise comment saying they have lost money following him, he as well as his other cult followers are quick to jump on them , to tell them, we never said to follow us. Now who was it that was handing out Gods 10 commandment on trading to the unwashed masses with the "Apprenticed investor series" just few months ago(with gems like "Thou shall never, never buy 52 week low").
So guru says follow me and become a cult follower but don't blame me if you are not profitable. Try making an alternative argument on Barry L. Ritholtz or Bill Cara's blog and see what happens. You will get roasted. The followers will jump on you, strangle you , the guru will call you moron or not the real thing.
Look at the blogs frequented by most traders, what have they been touting for over a year, a cult of bearishness or conspiracy. How many people have got suckered in to that logic. Lots and lots, that is why so many are bewildered and on sideline. They are the most popular blogs. I can understand about amateurs but even veterans get suckered in.
Last night I was chatting with a veteran trader who has a good profitable record and method, he has been on sideline for long and frustrated with himself at having missed out on good profit. What was the reason, in his own analysis, he started hanging out at one of the bearish gurus blog. Slowly he started believing in the cult , he started doubting his own methodology. Beliefs are very powerful, your actions flow from them. That is the secret of cult.They plant new beliefs in your mind. Once you start believing in aliens, you proudly start wearing a tin foil hat.
When I go to a blog, while I read the opinion, what I am most interested in is the methodology. Is their profitable methodology. If it is how much is the edge. What concept is it based on, can it be replicated. How much can you expect to make out of it. These are the kind of questions I ask and if I see a profit making idea, I will test it and incorporate in to my trading if it beats or improves my current method. You can dissect most people method very easily and figure out if it is profitable or not. The opinions are just opinions. They are for entertainment purpose only.
Momentum is cyclical. In late momentum phase like we are currently witnessing, the market goes in to frenzy. You will find several stocks with wide ranges. That is why most money is made in the last phases if you are a momentum followers. Yes risk of reversal is very high at such points, but risk management is for that.
In last 65 days 1300 stocks have been up 25% or more from their 65 days ago price. 310 stock were up 50% or more and 51 were up 100% or more. So no matter your methodology( even if you were technical analyst), you would have still made money.
It also depends on where you started becoming bullish on stocks. If you became bullish in August, you will be reaping rewards of the extreme momentum phase of the bull move.
Here is what I wrote on August 1, 2006
Some stocks set for rallies
The overall market action may look dreary but below the surface there is a strong rallies developing in some sectors and it looks like these rallies have legs.
How does a market turn and how can you anticipate market turns. Everyone has different ways to do it and it is a function of your understanding of overall market mechanics. It is also a function of your trading philosophy. Those who go by fundamentals look at stocks trading below a certain valuation levels. The macro players look at interest rates, liquidity, consumer spending, jobs etc. The cycle followers and Elliot wave followers look at cycles and their length. Technical traders look at support, resistance, chart patterns etc. No matter what trading style you follow you should have a way to determine overall market direction.
I follow a very simple objective method to determine market direction. It is based on a ratio of up and down stocks price in last 65 days. It gives you an objective consistently tradable signal. Going by that indicator we have a high probability of a rally developing in next couple of weeks.
When a rally starts developing you will see first set of stocks starts to rally, they have follow through , then more join in. In last couple of days certain set of stocks have started moving and are also witnessing follow through. So the early birds are off and that also gives clear indicator of what sectors are likely to rally.
The bearish propaganda machine is out in full force , denouncing the bull move and calling it a suckers rally. Calling those who made money during this phase as morons. After being persistently wrong for over a year, they might be right sometime , but is that a profitable methodology.Beliefs is all that matters to them, not making money.
Bearishness is a cult. It uses all the tools of cult building to seduce the followers. So many get sucked in, suspending their belief. Cult followers do all kinds of stupid things and have excellent justification for it. Cults are also built on creating alternative logic which is seductive and creates a alternative reality. Cult gurus are always very persuasive and have excellent arguments. For them the reward is ability to attract cult followers , not making money.
Just few months ago Barry Ritholtz was asking apprenticed investors to follow him. Many did. Now some of them are realising the folly. Couple of times some of those who followed his advise comment saying they have lost money following him, he as well as his other cult followers are quick to jump on them , to tell them, we never said to follow us. Now who was it that was handing out Gods 10 commandment on trading to the unwashed masses with the "Apprenticed investor series" just few months ago(with gems like "Thou shall never, never buy 52 week low").
So guru says follow me and become a cult follower but don't blame me if you are not profitable. Try making an alternative argument on Barry L. Ritholtz or Bill Cara's blog and see what happens. You will get roasted. The followers will jump on you, strangle you , the guru will call you moron or not the real thing.
Look at the blogs frequented by most traders, what have they been touting for over a year, a cult of bearishness or conspiracy. How many people have got suckered in to that logic. Lots and lots, that is why so many are bewildered and on sideline. They are the most popular blogs. I can understand about amateurs but even veterans get suckered in.
Last night I was chatting with a veteran trader who has a good profitable record and method, he has been on sideline for long and frustrated with himself at having missed out on good profit. What was the reason, in his own analysis, he started hanging out at one of the bearish gurus blog. Slowly he started believing in the cult , he started doubting his own methodology. Beliefs are very powerful, your actions flow from them. That is the secret of cult.They plant new beliefs in your mind. Once you start believing in aliens, you proudly start wearing a tin foil hat.
When I go to a blog, while I read the opinion, what I am most interested in is the methodology. Is their profitable methodology. If it is how much is the edge. What concept is it based on, can it be replicated. How much can you expect to make out of it. These are the kind of questions I ask and if I see a profit making idea, I will test it and incorporate in to my trading if it beats or improves my current method. You can dissect most people method very easily and figure out if it is profitable or not. The opinions are just opinions. They are for entertainment purpose only.
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1 comment:
Your post is right on.
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