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DIY Investor Market Reading App

unveiling our new app!

On Friday, oil was up 1.54% and the biotech sector was down nearly 1%.  Like the ticker symbols scrolling across the bottom of the screen on CNBC, these data points are pretty much useless.  I would argue that a single day’s action taken in isolation, provides no value at all.  In order to be useful, data needs context, which in this case is the trend.   We make money by investing in assets that are trending, and by doing our best to identify when a trend is possibly beginning or coming to an end.

However, in fairness to CNBC et al., is it even possible to succinctly communicate this much information visually?  This is the challenge that inspired me to create Market Reading.

Moving averages smooth out the “noise” of daily price movements, revealing trends.  Market Reading provides customizable moving averages, representing short and long term trends.  When both moving averages are rising, the asset’s information box is colored green.  When both are declining, the box is red.  When the short term moving average is going against the long term moving average, these colors get moderated to lime and fuchsia accordingly.

Market Reading is available now at the Google Play store in both a free and pro version.  The pro version provides the added capability to drill into sectors and stay on top of global market trends.

Watch the video below for more information and a demo of the app.  If you have any suggestions or questions I didn’t cover, don’t hesitate to reach out.

Although built to “scratch my own itch” so to speak, it is my hope that you find this tool useful too!

DIY Investor Market Reading Android App

Market Reading Free version

DIY Investor Market Reading Pro Android App

Market Reading Pro version

 

bigwinner2

breakdown of a big winner

Last week I closed out the last half of my biggest winner of the year.  Let’s take a closer look to see what lessons and tactics we can take from it and use going forward.

As I’ve mentioned before, I had a lot of success trading precious metals miners from 2008 to 2011 which, understandably, caused me to grow fond of them.  Unfortunately, this fondness had me “going back to the well” more often than was warranted, resulting in unnecessary losses.  The lesson here is to not become so enamored with a particular investment that you are ignoring or discounting the pitiful technicals.  In other words, don’t fall in love with something that can’t love you back unless you enjoy losing money!

Having gotten burned several times, I was initially skeptical of the rally when gold shot up at the beginning of the year.  Unfortunately, by the time it was apparent that this move was different and appeared to have legs, I didn’t see a safe way to get involved.  The key was to be patient and wait for a low risk buying opportunity.  The signal I was waiting for arrived on March 29th in the form of an 821x buy signal in GLD which I tweeted out.

821x buy signal

821x buy signal with obvious place for stop around $116

Seeing this, I went through my watchlist of miners looking for a good setup.  The one that looked best to me was Pretium Resources (PVG).

PVG consolidating around the 200dma

PVG consolidating around the 200dma

I entered a limit order for $5.30 a share which was the closing price on the day PVG first flashed an 821x buy signal, and got filled the next day.  After a week of consolidation, it broke out of it’s wedge formation and was up over 50% in little over a month!  Shortly thereafter, it had a sharp pullback to the 21 day ema where it put in a pivot with a low of $7.43.  When I saw that the pivot wasn’t going to hold a few days later, I sold half of my position at $7.33 locking in a nice gain of 38% on that piece.

sold half here with the pivot broken and the moving averages curling down

sold half here with the pivot broken and the moving averages curling down

A few days later, PVG gave an official 821x sell signal.  Having already locked in gains on half of the position, I felt comfortable giving it one more day to see if the closing low of $7.04 would hold.  If PVG had closed even one penny below that low I was prepared to close the rest of the position.  Fortunately, it held and proceeded to give an 821x buy signal a week later!  In hindsight, I can see that it would’ve made sense to go back to full size at this point.

PVG held $7.04 and the 50dma and then gave an 821x buy signal

PVG held $7.04 and the 50dma then gave buy signal number 2

The second move was even more explosive than the first, putting my remaining half position up well over 100% by mid July!  Then last week, it finally gave another 821x sell signal.

second 821x sell signal of this trade

second 821x sell signal of this trade

Again, because I had already locked in profits on half of the trade I felt comfortable giving it one more day to see if the closing low of $10.61 would hold.  Unfortunately, this time it didn’t, so I closed out the balance of my position at $9.71 for a gain of 83%.

all good things come to and end...

all good things must come to an end…

Putting the two halves together, I netted a gain of 61% on this trade making it my best trade of the year so far.  For reference and comparison, my biggest loser of the year was WYNN for a loss of only 6%.  Letting your winners run and cutting your losers short is the key to successfully growing your savings in the stock market.

I hope that reviewing this trade demonstrates one way the 821x trading system can be used in practice.  If you have any questions about this trade or the 821x trading system in general, don’t hesitate to ask!

feelinghigh

how do you feel at new highs?

The S&P 500 closed at a new all-time high yesterday.  Upon hearing that, the average investor’s first instinct is to think that the market is topping out.  Stocks are too expensive.  Valuations are dangerously stretched.  The higher they fly, the harder they fall.   We are overdue for a crash etc., etc..

However, we here at DIY Investor know better.  Perma-bear fearmongering is as unhelpful as unchecked bullish exuberance is dangerous.  Emotions and feelings aside, here are the facts: after making it’s FIRST new intraday high in over a year on July 11th, the S&P 500 made 8 additional new highs and there is no reason to think that there aren’t several more on the way.  Only ONE of these new highs will be a long-term top.  MOST of them are just stepping stones to higher and higher prices.  That’s why, counterintuitively, new highs are bullish.

the powerful uptrend that started in 2009 is still intact

high as a kite with no sign of coming down…

If this rally continues, fears of a failed breakout will give way to a fear of missing out.  IF this happens, the market can enter a mania phase where the uptrend gains EVEN MORE momentum.  IF the last remnants of fear give way to unbridled greed, the market can explode into full-on bubble territory, which would mean we would see MUCH higher prices than we are seeing now.  When this hypothetical bubble inevitably bursts, it will end badly for those that are unprepared.  However, those of us with a plan will do very well and be able to lock in the lion’s share of our increased wealth.

Before you accuse me of smoking something, let me just say that I fully understand that this is a far-fetched potential scenario.  Nevertheless, I do believe it is one worth keeping in the back of our minds as we break out of a year consolidation to new highs.

P. S., I only provide the actual buy and sell instructions for our 821x model trade here on the blog and through email to subscribers.  Be sure to follow me on Twitter @marketchameleon for updates in between.  On Tuesday, we received an 821x sell signal on NTG, our model trade. However, I recommended via Twitter that we not close the position unless it closed below $18.10.  The stock pivoted and proceeded to put in an 821x buy signal on Thursday so far averting an unnecessary shakeout!

 

Facing-a-Fear (2)

no need to fear a big drop

“News” that George Soros is shorting stocks grabbed headlines once again this week.  I don’t see why this is getting people so worked up.  Soros has supposedly been making big bearish bets since the beginning of the year.  He’s been warning of a repeat of the 2008 financial crisis and apparently has a 2.1 million share put option against the S&P 500.

I have no clue if George Soros is right.  However, I do know that “news” like this does nothing to help us make money.  We make money when we position our trades in the direction of the 8 and 21 day moving averages.  Right now these moving averages are rising, so we are bullish and long stocks.  In fact, this week the S&P 500 poked through the highs of last November, essentially negating the macro pattern of lower highs and lower lows that has controlled the big picture over the last year.

The only argument bears can make now is that this was a failed breakout which will lead to a fast drop lower.

failed move leads to a fast move?

failed move leads to a fast move lower?

I will grant that this is a possible scenario.  However, the weight of the evidence we have right now still points to higher prices.

If Mr. Soros and the bears turn out to be right, we will have plenty of time to change our stance and position our portfolios accordingly.  We would lock in profits and raise cash as our holdings give us 821x sell signals one by one.  We could look to move some money into other asset classes such as bonds and/or gold.  Finally, we may take bearish bets against stocks alongside Soros by purchasing inverse ETFs,

We will have sufficient early warning.

We have a plan of action.

There is no reason to fear.

stare(crop)

patience pays

A dangerous misconception many DIY Investors have is that our job day-to-day is to “make money”.  Obviously, that is the outcome we are hoping to achieve, but it is not what we actually do.  Remember, we have no control over the direction of the market or of our holdings at any point in time.

No, our primary job is to manage risk.  Day in, day out this is what we  are actually doing.  The stock market can provide life changing monetary rewards, but with those rewards come enormous risks.  The only way to safely gain exposure to the rewards of trading is to strictly define and manage the risk you are taking.

There are two primary ways we do this:

  • Position size – I touched on this in my trading manual, but basically we NEVER want to go “all in” on any single trade.  We need diversification.
  • Stop-losses – This is the price at which we would admit that the trade setup is no longer valid and would therefore sell.  This level should be identified BEFORE we enter any trade.

Our position sizing tool combines these concepts.  I encourage you to play around with it so you can get a good handle on how much you are risking on any given trade.

There is, however, another often overlooked component of risk management that is perhaps even MORE important than the ones above: patience.

By this I mean having the discipline to allow marginal or higher risk trade ideas go without you while patiently waiting for the BEST, low risk, high probability setups.

Warren Buffett has a famous quote that’s relevant: “The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.

The fact is, every time we enter a trade we are putting our money at risk.  Therefore, we should always take a moment beforehand to ask ourselves, “is the perceived reward worth the risk?”  Be picky.  Be patient.  I promise you, it will pay off.

This concept comes to mind when looking at a chart of the S&P 500.  The market has just run 15% higher in about two months.  It’s just below a declining trend line that connects the closing highs from last July and November.

showing downtrend line connecting lower highs in SPY

right back up to the downtrend line connecting lower highs in SPY

If the current rate of ascent continues, we could be looking at new all-time highs in just a few weeks!  However, what is most likely to happen?  Personally, I think that after such a big run and at an important trend line, it’s more likely that the market will pull back in this area.  This doesn’t necessarily mean that we should get short.  The market doesn’t HAVE to pull back.  And if it does, keep in mind that it would actually be bullish for the market to put in a definitive higher low before breaking the macro pattern of lower highs and lower lows.

The bottom line is we have a short term bullish market still within a larger bearish look.  These mixed messages are about to come to a head so I believe the best course of action right now is patience.  It makes no sense to increase exposure to risk in the face of this uncertainty by taking big bets here.  Let’s continue to manage our open positions and patiently observe market action in this pivotal area.  There will be plenty of time to pounce when the outlook becomes clearer.

 

the pursuit of freedom

the pursuit of freedom

Freedom is a beautiful thing.  Live and let live.  No person or institution using force to impose it’s will on another human being.

It’s a wonderful goal that we should all aspire to in our lives and in our dealings with others.  Unfortunately though, for most, personal freedom remains a starry-eyed fantasy, an elusive “if only”.  That’s unfortunate, because most of the shackles that enslave us are of our own making: self-limiting beliefs, a refusal to venture out of our “comfort zone”, and allowing fear of failure or fear of rejection by others control our actions.

the-2precent-mindset-whoischick

Futhermore, self-imposed financial shackles like suffocating debt and an uncomfortably high lifestyle burn-rate mean we often go to work each day not because we want to, but because we have to.

The first and most important step we must take to end this cycle of self-sabotage and achieve personal freedom is to free our minds.  We can never truly be free as long as we are seeking approval and validation from others.  This is much easier said than done because this requires undoing much of the “training” we have received since childhood.  This is a big topic that deserves several blog posts but I’m going leave it there for now.

Once you get that right, I believe the second most effective measure you can take to achieve greater personal freedom is to build wealth.  Financial freedom enables you to pursue your happiness, whether that means spending more time with family and friends or traveling the world and experiencing different cultures.

Financial freedom also empowers you to exercise your most fundamental and consequential voting right; the right to vote with your feet.

The pursuit of freedom is ultimately what this blog is about.  If this is important to you, identify those activities that materially increase your freedom and spend your limited time and energy there.  Let me give you a head start: politics and religion don’t make the cut.  In fact, most of what is generally accepted by society as important won’t make the cut.  The truth is, “society” doesn’t give a damn about your freedom and would actually just prefer a good citizen who falls in line and can easily be controlled.

Remove your self-imposed shackles.  Free your mind and then invest time and energy increasing your wealth, and by extension, your freedom.  I guarantee it will change your life.  It has certainly changed mine.