Newsletter
January 10, 2009
The Will to Prepare
Look to the Higher Time Frame
Blog posts you may have missed this week:
Developing an Investing/Trading Plan - Part VII
What’s Wrong With This Picture (Ultra Short ETF’s)
2008 Winners
S&P 500 A Composite Look
Sector Performance Year-to-Date ‘09
The Will to Prepare
This Week By: Vic Johnson (MP3 Motivators)
"Even the person whose sole object is to acquire wealth must be prepared to make great personal sacrifices before he can accomplish his object; and how much more so he who would realize a strong and well-poised life" - As A Man Thinketh
Whether you like Bobby Knight or not, you have to respect his ability to produce championship teams. One of his winning principles is one I have come to embrace: "The will to succeed is important, but what's more important is the will to prepare."
For all of my life I’ve had the will to succeed. Like most people, I’ve always wanted to stand in the winner’s circle – to win the championship – to wear the gold medal. But for a good part of my life I never fully understood that champions aren’t made on the day of the game. That’s simply the day the world recognizes all of the preparation that took place before that day arrived.
It has taken me many years to learn that none of the “big” things I’ve done have helped me to succeed. Instead, it’s all of the little things that I did over and over. For example, the discipline to plan each day’s work the night before, no matter how tired I was, has had more to do with my success than any “big” thing I’ve ever done. Not a “big” thing, but a necessary thing in getting prepared to win.
The adoring crowds and television cameras aren’t around when Champions are made. They’re made in the early morning hours when the rest of the world is sleeping just a little bit longer; in the late evening hours when fatigue has overtaken the average person and sent them to bed. In thousands and thousands of little ways that they discipline themselves to do the things that everyone could do, but most people won’t do. As one of my heroes, Muhammad Ali, said, “The fight is won or lost far away from witnesses - behind the lines, in the gym, and out there on the road, long before I dance under those lights.”
And that’s worth thinking about.
Look to the Higher Time Frame
There are probably as many styles and methods as there are traders and investors. As for the technically oriented trader, some trade off 5-minute charts, some off monthly charts, and just about everything in between. Whatever the time frame you prefer to trade, check the higher time frame, it just may bail you out, if your timing is a bit off.
A stock or market average or commodity for that matter can be in a defined uptrend on a 5-minute chart but consolidating on the 60-minute chart, while in a downtrend on the daily chart. If you're operating in that 5-minute time frame keep in mind the trend in the higher time frame. You may be trading with the 5-minute trend but you must realize it's a counter trend trade when considering the larger time frame.
I know it sounds a bit confusing but let's try and go over some examples to illustrate the point. Personally I do not use intra-day chart's, my lowest time frame chart is the daily. So let's begin there.
One (of many methods) I use to define the trend is the 55 period moving average. It won't turn at bottoms or at tops but one could do a lot worse than using the 55 period moving averages to define the current trend, i.e. shorter term on the daily, intermediate term on the weekly chart. If the rate of change is positive the trend is higher and if the rate of change is negative the trend is down.
First we'll reexamine the first correction of the 2002/3 through 2007 bull market which began in March of 2004:
The red line is the 55 day moving average and after a strong rise into mid March turned down; i.e. the daily trend is down by this simple definition. For the most part volume is also declining during this shorter term downtrend. The question, which was on the mind of many at the time; was the bull market that began in 2002/3 not a bull market at all? Was it nothing more than another bear market rally?
Now, as the title of this newsletter suggests, let's look to the next higher time frame; the weekly charts.
By moving up one time frame from the daily chart to the weekly we generate a somewhat different picture. In this case using this very simple definition; the direction and rate-of-change of the 55 moving average, we see it is still strongly up and we've merely corrected to the moving average, which in 20/20 hindsight acted as support. From this chart we can deduce that the odds favor a resumption of the uptrend some time soon. The important point is simply that during the July/August time frame in 2004 by looking at the higher time frame, the moving average, and perhaps your favorite indicators it should have been apparent that the odds favored long positions over short positions.
I use the term odds because it's an important concept that all should familiarize themselves with. In this authors humble opinion, success in this business is not about being right or wrong; it's all about risk and money management, then moving when your perceive the odds to be in your favor.
What do the above pictures look like currently? Two charts (as of Thursday close); weekly then daily, do the odds favor a long or a short? While you may or may not agree with this simple methodology one needs to learn to act when you perceive the odds are in your favor over the time frame you are trading/investing.
How do your perceive the odds of a long or short position? Remember trading and investing is not about being right or wrong; it's all about money and risk management. There's and old cliche' in the futures markets (my old stomping ground) that a successful trader is wrong 2 out of 3 trades; but when he's right - he's really right!
Have a Great 2009!
Bill
Prudent Trader.com
Disclaimer: Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.
|
|
