weekly market update: why I target “big, predictable moves” and ignore the rest

On the benefits of being selective about investments, here is a chart showing two large 3 month gains (across the last 18 months or so). I will explain the “signals” across the top after we cover the results available.

To make the math easy, let’s imagine a $10,000 starting balance in late 2018 that goes up to about $19,000 by late March of 2019 (at the first orange arrow on the blue background). Then, to keep the example simple, no new positions would be entered until that 2nd green box toward the bottom right (in March of 2020).

At that point, the $19,000 is invested again and produces about a 180% gain (selling at the 2nd orange arrow). That brings the balance up to about $53,000. That is about a 430% gain across the 18 months in only 2 trades.

Further, unlike mainstream investors who choose not to invest in a system like this that adjusts due to market conditions, this is a system for targeting high profitability and low risk. So, while mainstream investors get excited as prices rise and freak out as prices fall, this system provides a contrasting context.

When prices fall, that increases the interest in BUYING (staying patient until the signal across the top of the chart reaches a green action level). As prices rise, that increases the interest in SELLING (again, staying patient until an orange action level across the top).

So, the typical emotional swings of mainstream investors are entirely avoided. The pessimistic panic of mainstream investors on a sell-off is actually what creates a “buy signal.” The hysterical optimism of mainstream investors is also what creates a “sell signal.”

Within this system of 2 trades of about 3 month in duration, the occasional declines in value would be very modest and rare. Again, that is a stark contrast to the various large, multi-month declines that mainstream investors have been “investing in.”

Why is the downside risk and duration of drops so modest during the two 3-month trades of this system? Because it specifically targets entering only at times of elevated opportunity and low risk, then exiting once the short-term opportunity is greatly diminished and the short-term risk is greatly increased.

So, this is a simple presentation of course. The reality is that across a variety of markets in the last 18 months, there have been several excellent “signals.” Instead of only trading twice and gaining “only 430%,” there is no reason to focus on just one market (such as stocks, which is the type of market shown in these charts). I also forecast and trade bonds, metals, forex, and occasional other markets.

Further, I don’t just trade “one side” of a market. For instance, the 2 sets of signals shown above have been perhaps among the least interesting to me in the last 18 months. I’m sharing them here mainly because I expect many readers to be familiar with price moves in US stocks recently.

But why did these set-ups shown here generally “bore me?” One example that is easy to document is my forecasts posted on Facebook starting January 22, 2020. Across the next several weeks, two investments that I use rose in value about 1000% and about 2000%. That was in much less than 3 months and for much bigger gains of course than just 90% or 180%.
Crude oil prices also plunged enormously and then went up something like 700% in the last few months. So, rapid gains of 90% or 180% are fine, but they are not really approaching what I consider a “primary opportunity.”

By the way, I offer my services to anyone who has or wants to get a brokerage account. I do not target every opportunity. I do not target making a profit every day or even every month. I target finding the most profitable opportunities with the lowest long-term risk, then I invest to enter relatively early (prior to a move accelerating or even starting) as well as to exit relatively early (prior to a move reversing or even significantly decelerating).

Finally, I never said much about the top portion of the image which shows a blue line on a white background, plus 5 orange boxes. The blue line tracks the percentage of stocks within a certain index that are above or below their recent “average price” for that stock.

In particular, I want to know when the vast majority of those stocks are “cheaper than usual” or “more expensive than usual.” The logic is quite simple:

When almost everything is getting cheaper, buy that discount. When almost everything is getting costlier, sell that peak.

This signal is just one of many that I use. One limitation it has is that while the 5 orange boxes show times of excessive risk, those “sell signals” have only been highly reliable as “exit signals” to get out of stocks. The sell signals SOMETIMES rapidly lead to massive and lasting declines in stock prices, but sometimes the declines that follow a “sell signal” are quite brief and small.

Every signal that I use is “better” when combined with other signals that measure opportunity and risk in a different way (such as shorter-term vs longer-term). In most investment markets (such as bonds, forex, and metals) I rely entirely on signals that have very little in common with this one.

P.S.

For those who ask me “what about investing in US stocks right now,” look at the top line of the image (to the far right at the top). Is there currently a green signal to buy? Or, is there currently an orange signal of historically elevated risk and diminished upside opportunity?

Further, ask yourself why in the world would someone be focused on stocks in particular? Why not instead ask “among all markets, which ones offer the best mix of high probability, high profitability, and relatively modest risk?”

If you do not have data to compare different markets, then any investments you make are ignoring inter-market contrasts. Those who habitually chase after trends of rising prices (for stocks, real estate, gold, bitcoin, etc) have no “exit signal.” They have no attention to different markets and which ones currently offer the lowest risk or highest appeal.

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