The Two Forces That Move The Market…
And How To Make Them Work For You
The Smart Profits Report #547
by Jim Stanton, Technical & Quantitative Analyst, Smart Profits Report
When you’re spending 10 hours a day on the phone, “cold calling” potential customers, trying to sell them on your firm’s products and services, the gig gets a bit tiring after a while.
That’s how I began my career as a stockbroker in the early 1980s - and it was a job that left me very little time to focus on my real passion: Researching stocks and making successful recommendations.
Instead, I was forced to sell investments that weren’t always in the best interest of my clients. And needless to say, after a couple of years, I was discouraged. My firm’s recommendations weren’t doing very well and it often seemed like I was telling my clients to “average down” their losing positions.
That’s tough on your conscience and I was quickly losing confidence in my chosen career path.
That is until one evening when I went to meet another potential client, Dr. Sullivan. I made the trip to his home in Annapolis, MD - and when I stepped inside his mansion, what I saw blew me away…
Back To The Future
Dr. Sullivan’s office walls were covered with stock charts. Not only that, he had rows of computers lined up - not a common site in the early 1980s.
When I asked about this, he simply told me, “I pick stocks based on chart patterns.”
I was a bit taken aback by this, not to mention a little skeptical. But I sat down and listened. And as he explained it all, I became fascinated. In just a couple of hours, I knew he was onto something.
Within days, I leased my own computer (yes, leased!) and started to develop a technique that would accurately predict a stock’s future movement.
It wasn’t an easy task. Back then, chart pattern trading was difficult to do, because unless you had a bundle of money to buy a computer, the only way to study charts was to subscribe to a weekly publication called Daily Graphs, which is still published today.
But there’s a very simple way to summarize a chart pattern…
The Two Main Forces That Move The Market
Fear and greed.
You’ve probably heard about these two crucial investment concepts before. They’re essentially the two main forces that move the stock market.
Simply put, when a stock goes up, it’s because of greed. When a stock goes down, it’s because of fear.
And since these human emotions never change, Dr. Sullivan and I began finding recurring patterns in stocks’ past movements.
But what really triggered my interest big-time was when I discovered that this theory applied to patterns found on both daily charts and even intraday charts, too.
After a while, I began trading with my own money - and fared so well that I decided to see how I’d do against Wall Street’s “elite.”
I entered a trading competition sponsored by Winners Circle Magazine - and the results surprised everyone except Dr. Sullivan and me. I won the contest with returns of 257%.
Since then, I’ve taken pattern recognition trading to another level. Here’s how you can, too…
25 Years Later…
You know how all those folks on television keep boldly declaring that, “You can’t time the markets?”
I can’t remember how many times I’ve heard various so-called “experts” say this. But if that’s true, then why do they always show charts?
Simple. Because they know that charts are fascinating to investors and that many of them use charts to make investment decisions.
The question is, though: Does this type of trading really work? Most certainly. Let me show you…
Here’s an example of a recent trade I sent to my subscribers. First of all, take a look at the chart below…
How We Rode “The HOG” For 112% Profits In Less Than A Month
In January, shares of Harley Davidson (NYSE: HOG) began trading in a bearish consolidation pattern. And when the stock made a new low in March, the pattern recognition component of my system determined that the projected minimum downside target was $32.50.
With that target set, I waited for the stock to rally before taking action. Why? Two reasons…
- The higher the stock goes, the less risk and more profit potential in the trade.
- The broader stock indexes were moving higher and I didn’t want to add any short positions until the rally ran out of steam.
As it turned out, the stock indexes topped out in late May and HOG traded back up to the top of its consolidation pattern before heading lower. This generated a new sell signal on June 10, but I waited for the inevitable bounce, which occurred right on cue - from June 11 to June 17.
So on June 18, I issued a trade alert to buy the August $40 puts.
Just three weeks later (on July 11), the stock reached our target price and I sent an alert to subscribers, instructing them to sell the puts at the market. This produced a profit of 112% in less than a month.
This is just one of many successful trades that the system has produced this year - even as the stock market has tanked. My subscribers have had the opportunity to book cumulative gains of 591%.
On Monday, in my regular “Sector Watch” column, I’ll talk more about the “code” that I’ve developed that consistently racks up steady, safe gains and beats the broader market. So stay tuned for that.
Jim Stanton
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2 Responses to “The Two Forces That Move The Market…”
[...] last Thursday’s Smart Profits Report, I showed you an example of how the pattern recognition component of my system generated a [...]
[...] Consider that over the short-term, markets are driven by anything but rational factors. They are, in fact driven by fear and greed. [...]