A break from market analysis to talk about - gasp - actually profiting from market analysis!

One of my readers has left a comment on my site that could have been written by me, a number of times over the past few years. And could have been written by any number of my trading buddies over many years, too! I think this is absolutely great and so I hope my reader won't mind if I quote it in here, and talk about it some:

I had to step away and clear my mind and thoughts. The name of your blog clearly characterized what I should have been doing [rather than doing] wrong...instead of being "unbiased", I have been skewed toward the bearish side of the market. I would have to say that I have been terribly influenced by all of the bearish blog sites I have visited like stocktock.com, slopeofhope.com, evilspeculator.com, zero hedge, etc.

When the boat is tilted toward one side, it always capsizes.
In other words, the crowd is always and will always be wrong. With all of the negative and bearishness vibes on these sites, I was being force fed with the same point of view. The bears are clearly intelligent and have a very strong argument for why the market should go down on a daily basis. However, a trader should never care if he is wrong or right. He should only care if he is on the right side of the trend and to make money.

.... I don't need to commit suicide anymore with my account. I have to take a break and look at how I want to approach things. I don't know about EWT, but I've seen too many people change their counts to justify movements.

First, you are SO RIGHT! I've been there and know exactly what you mean. And, perhaps by psychology or something, I've tended to be on the bearish side a bit too much. Then, for a while I followed a brilliant trading mentor who was great at daytrading, but tended to be too bullish on the swing trading side. It hurt me in my swing trading (though the daytrades were great). Since I'm mostly a swing trader, the net effect wasn't good for me. Still, I learned a whole lot, including the importance of being unbiased (actually, I don't know that he was biased bullish, but rather, he was deeply suspicious of the EW counts coming out of the EWI (Gainesville crowd), so tended to look for alternatives to those -- and was usually right, at least in terms of finding them wrong!). Very sadly, he passed away in October (God rest your soul, Dom!). I've got tears in my eyes as I write this even now - it was a tragic early passing.

It did propel me into starting up this blogspot, and taking more command of my own views of the swing trading perspective, thus suiting my own style of trading. Often enough, I do find myself asking, what would Dom say about this pattern? But I also lean more heavily to other technical analysis indicators, which I had learned independently, and incorporating the analysis contributions from Andre Gratian, and now Tony Caldaro for Elliott Wave ideas, Terry Laundry's T Theory, Raymond Merriman (whom Dom did read and take into account), and of course ChartsEdge with their uncannily helpful forecasts. As well as other sources that make sense (and there's that new one, new to me anyway, the PTV-Investing which has very cool Gann and time cycle work).

There have been times when ChartsEdge has issued a forecast, as they did last weekend, when I'll admit I said to myself, Arrgghhh! why are they showing a rally into late Friday, when I think the market should have topped out already! And, I still think that it did, but had to respect that the cycles they analyzed showed a reason to look for movement higher as the week progress. Well - sometimes their forecasts don't "work," but more often than not they do - and here, it happened again! Congrats to ChartsEdge!

Another real lesson in remaining unbiased. The worst thing as an investor, or trader, is trying to argue with the market. It's exactly like arguing with a force of nature - in fact, I think it IS trying to argue with a force of nature. Just the same as going outside in a thunderstorm and saying, "you should not be raining!" Doesn't work, and you only get all wet. So, if one cannot bring oneself to trade with the market, that's okay - just don't trade against it. [Or find something else to trade, or just take a holiday.]

From the Taoist perspective - and I should write more about this at my Tao of Trading blogspot, I don't keep it up very well - the issue is about the ego. It's about being willing to say, okay, I was wrong the first time, and let's allow the market to be right, and let's ride with the market.

Those bearish websites, I've noticed a lot of bearishness lately. Now look - we are not saying anything bad about other sites. I do enjoy reading ZeroHedge. But for example, I noticed a while ago they were predicting the VIX to go up in a "5th wave up." Well, I know better than to apply Elliott Wave to the VIX. Besides, after a while it was becoming clear that the VIX wanted to trend down into the Armstrong time window. I didn't really like it, because the SPX had not quite reached the number I "wanted it to," on the March 6 low. Silly me! I had to respect what the McClellan Oscillator and Summation Index were saying, along with that spooky Fibonacci 1.382 time extension I figured out for the early March lows. And finally we got to the Armstrong time window and now we know where we stand.

So, we can allow them to be bearish, we just don't want to be swayed by those ideas for actual trading. Just as we don't want to chase the investment ideas touted on CNBC or anywhere else. There are times the market goes down, there are times it goes up, and that's just that!

At least, for the bearish ideas (grin, grin) I've got the dollar in the potential wedge up, but it has to remain above my trendline. If it falls under that, then I HAVE to give that up and go with something different, more like what Tony Caldaro is projecting for the dollar and conversely for gold. Will see, gotta let the market reveal itself.

I still strongly believe the late May time period will be a very important one. I just honestly do not know if it will be a high or a low. Whichever it is, I personally strongly believe there will be a reversal in that time window. Again - gotta let the markets tell us whether it will be a high or low.

I can tell you this, that Armstrong's March 2009 newsletter stated that he believes, if there's a high in April (yes!) then we'll see a new low in June/July. Okay - the author of the Economic Confidence Model has spoken - once again, we'll see!

With all the bearishness that has been around, I agree with you, it HAS caused the boat to be loaded too much that way and so created a wall of worry for the market to climb. I really will continue to try to remain Unbiased, and I hope that all my readers will do the same (and if you see me getting biased, don't be shy about commenting on it!).

One of the rules of trading is never commit too much of the account, only place a small amount into any one position, and always leave powder dry. As for options - I know, it is very difficult to work with placing stops for those. I'm told that it's much easier to do that with futures, but I am not trading futures yet (it's part of my plan for the future though). Also, I've learned the hard way, only to trade options for a minimum of 30 days out, better 2 or 3 months out - don't let premium drain erase the position, the evaporation of the premium during the few weeks (and especially last week) before opex are a killer! (Only options sellers really benefit from that.) And, never hold a daytrading position overnight - the daytrading margin is too much, it drains out your flexibility for the next day (I think they push daytrading margin on the innocent, at least that was my early experience, and then it just hooks you in, and then the big players can toy with the "little fish".)

You may be aware of all of these, but just in case some readers haven't learned some of these yet, they probably are worth stating.

Personally, I've decided that the new double and triple ETF's can be very handy, at least for trading accounts where you have the flexibility of a margin account or a daytrading, so you can quickly exit a position if it's going against you. I am very aware of RegT limits for cash accounts, though - which is a reason why I try to factor in my charts and thoughts for those who need the "slower movement" of a cash account, not getting ensnared by RegT, stuck into a trade that's going against you. Also, if you find yourself getting into a position too early - it's embarrassingly easy to do that - then if you've kept a lot of your principal in cash, you can add onto the position. This is NOT the same as "doubling down" or whatever - I am very much AGAINST the idea of dumbly adding to a position as the market moves against you. KNOW why you are entering a trade, and how to tell when the market has violated the setup. If a setup is "broken" then it's broken, so throw it away and cash out!

Definitely one of the reasons to look, not only at Elliott Wave theoretical ideas (by people in Gainesville, whom I've met, who actually do not trade and really don't know how to trade - isn't it amazing!). But also at indicators like the pair I set up and discussed at my NoBullNoBearNoBias trading education site, the combination of SlowStoch and OBV on a 30-period moving average, as well as the StochRSI (I like on the 21 setting rather than 14), to help show whether or not The Force - er, I mean, The Momentum, is With You.

One thing I learned from Dom, my late trading mentor, is to check those indicators on several time frames, as I described earlier today. When you see the 5-minute and the 15-minute momentum indicators "agreeing" then you know you've got a movement that you can ride intraday. Similarly, if you see the 15-minute and the hourly, and then the hourly and the daily indicators "agreeing" you know you can ride it for a longer trade.

Or, let's say a setup is based on a Fibonacci number, or a trendline like the dollar at my diagonal trendline. I call it a "hypothesis" because that way, I can feel more unbiased about it, than saying it is my idea or my opinion or belief. If the dollar falls under that trendline, then I can say the hypothesis is wrong and something else is happening. I don't like it, but I've got to be honest, and not try to stay with a losing idea. (Fortunately so far, it is not broken :) )

I also learned from another great trader whose articles and some tutorials I took, Kevin Haggerty, some very neat trade setups and I've already recommended those for anyone interested - particularly the trap door, and the 1-2-3 trend reversal setups.

I know this is all a lot to consider, and really goes beyond the scope of your comment. But this is SO TRUE - we've got to shake off all the talking heads and smart "analysts" who point to a thing or two, or pontificate on how terrible the banks are doing or whatever. They ARE smart and have good things to say. But if we want to make $$ from the markets, we've got to shake that off, and dance with the market allowing the market to take the lead.