The Market Timers |
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Occasional Musings from a Stock Market Timer
Human Psychology Moves the
Markets
Price Floors and Ceilings Play
a Big Role
Markets Trend and Do Not Walk
Randomly
These Mathematical Tools Help
Spot Turning Points
The Golden Number
Pattern Recognition
and Timing Signals for Stock, Futures, and FOREX Markets Superior Charting Software for the Serious Trader
Simple Longer Term Approach for
the Average Investor
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Risk
Management
Preservation
of capital is the number one rule when investing your hard earned money.
Medium and long term investors can take a good lesson from short
term traders. Active sort term traders such as day traders, swing
traders, and commodity traders often employ rigorous risk management to
limit losses and preserve profits. They set a price level, called a
stop or stop loss, and should prices move to this level the position is closed immediately.
The stop is initially placed at a level that limits the potential loss
(often 2 to 5 %) and if the position moves into profitability this stop
is then adjusted to lock in profit should prices reach the new stop. These
protective stops are placed at key levels that would indicate that the
current trend has likely changed. For
example. The S&P 500 appears to have finished a week long decline.
The corresponding ETF (SPY) has made a bottom at $90. You take a long
position by buying SPY the next day at about $91. You place your stop
just below $90, lets say $89.90 to allow for a little wiggle room. So
should the market not go up as expected and goes down below $90 and hits
$89.90 you exit your position at a small loss of 1.1% no questions
asked. But lets assume your judgment was correct and the markets do go
up. They climb in a zigzag fashion to $99.95 and you are holding a nice
9.8% profit. You noticed a few days earlier that at about $98 the
markets fell back to $97.25 then turned around and continued to climb to
their current level. $97.25 is now a very important level that stopped
the decline so you should raise your stop to just below, say $97.15.
Should the markets fall again and the $97.25 level does not hold this
time it is a good indication that the current upward trend has changed
and a larger decline is likely. Your stop is now protecting some of your
profit and if your stop is triggered you exit with about 6.8% profit and
wait for the next opportunity to re-enter the market, this time with
6.8% more capital. The key here is the potential for compounding. Using stops ensures you never take a big loss and never loose all your profit. Once you've exited the market with profit your capital is now larger and needs to be preserved. When you re-enter the market, under favorable conditions, your capital is again protected with stops. Instead of riding the up and down seesaw of the market your portfolio tends to steadily go up in a step-wise fashion. This kind of risk management can generate some aggressive compounding even with mediocre market timing. Good market timing helps ensure losses are rare and profits more frequent. Adventures in Online Investing
The purest, most accurate trading signals
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TheMarketTimers.com provides introductory information to
the techniques used for stock market timing. Trading stocks,
currencies, or any security
involves risk. The stock market timing techniques shown on this site can
help control the risks involved in trading. Though these stock market
timing and charting techniques are very helpful for some traders, they
require experience and knowledge of market behavior that comes with
practice. It is advised that traders use
risk management and set loss limits on every trade.
©2005 AxeMedia
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