“No man can learn what he has not preparation for learning, however near to his eyes is the object. A chemist may tell his most precious secret to a carpenter, and he shall be never the wiser – the secrets he would not utter to a chemist for an estate.” – Emerson
Success in trading is built upon a solid foundation of study and preparation. Yes, there are a few that can make substantial sums from the start of their career in the business of trading stocks. But what works for them is a rare “natural” phenomenon for which they can thank their lucky stars. The rest of us must work hard and learn for ourselves.
It matters not that one has the best stock trading platform; preparation and knowledge are essential to successful trading. New traders tend to over-complicate their trading. They tend to follow too many technical indicators or trading fads of the day and buy expensive software and add-on trading packages without having the basics down.
There are many approaches and methods to success in trading, but not all will be of added value or work for everyone. So, where to start? Reading the works of the past masters in the trading business is essential to discovering the path that fits the individual. Does the method under study fit the personality of the trader? Does the strategy provide the knowledge and necessary preparation for the trader to be a success? In what market dynamics does the approach find success?
A solid foundation is required not only for building a house; any career requires one as well. Going from basic chart patterns to oscillators is one thing. Making a jump to algorithmic trading strategies is another. The trader must understand the components of each to be a success. One builds their house or career from the foundation up.
“Never confuse a bull market for brilliance.” There is not a more accurate saying on Wall Street. Anyone with a modicum of experience in the investment/trading business has seen the wunderkind investor/manager that blew up spectacularly when the dynamics of a bull market changed to that of a bear market. We have a recent example of a substantial hedge fund blowing up its account in the Bitcoin arena. As all will know, one-way trading and an unwillingness to change when market dynamics change is a recipe for financial disaster.
Proper preparation for trading requires knowledge of what constitutes a bull market, a bear market, a low volatility market, and a high volatility market. The trader/investor must know the best strategies for trading in each situation. Over the last nine months, as the Fed started to change its stance on inflation and interest rates, short selling opportunities became more prevalent in the equities market. Lots of unicorns were there for short selling. It was a ripe environment for the natural bear market trader.
As readers of this market note will remember, we focus our intermediate and long-term cycle work on the 60-year cycle (our master cycle). And that being the case, our focus this year has been on the 1962 analog. The market (S&P 500) began the year with a high of 71.96 on January 2 and sold off until June 25, when it found a low print of 51.35, a 28% decline. From then on, the index rallied until August 23, when it found a high mark of 60.33, a 17.49% gain. That was it for the bounce, and the market dropped (commensurate with the Cuban Missile Crisis) to the Autumn bottom on October 24 at 52.55, a 12.9% decline. Subsequently, the index finished out the year with a close of 63.1. We will cover the 40-year analog and the 20-year analog next week. This year has tracked well with the 1962 analog. Nothing is perfect but had a trader taken this into account from the start of January, they would be delighted to have done so. Trade well and stay safe. JHS
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