It's more important to the market than Italy, Greece, Portugal, and Spain combined

Posted on by The INO.com Team

The trials and tribulations of these four countries (that have run up huge deficits) have been well known for quite some time. What is more important in my opinion is not the size of the debt, which is staggering, but rather what is going on with market perception.

Market perception trumps everything else out there. Market perception trumps market fundamentals every time. Market perception is the one card that the government cannot control. It is the card that can potentially give the individual trader an edge.

So what is market perception? Well, have you ever noticed that when some big world event happens, or a new "hot" IPO hits the markets, traders expect that market to go in the talked about direction and typically it does. What doesn't get talked about is how the market then corrects itself and the technicals really come into play.

The only real way to avoid the trap is through the use of technical analysis, or in the case of MarketClub, our "Trade Triangle" technology. This technology doesn't read the newspapers, doesn't watch cable news, and is independent of everything else except the market itself.

What is the most important thing to most investors? I would have to say it is the bottom line. If you're not making money in the market, then you're doing something wrong. Maybe you're paying more attention to the talking heads on cable, or to the nightly news, but you're not really paying attention to market perception.

I was lucky enough when I began my career to learn about technical analysis very early on. I said to myself, when it can be this easy there must be something more that I'm missing. It was then that I made the mistake of looking at all these other so-called tools like fundamentals, earnings reports,  etc. You name it, I looked at it.

One day I finally got smart and realized that I had already found the "true gold" in trading by using technical analysis.

I was just watching some talking head author on TV and they were saying that technical analysis is so 1920's and old technology. Of course, the person who was saying that was looking to sell copies of their book.

I said to myself, boy oh boy, not to look at technical analysis, which is like the DNA of the market, is a huge mistake. I can see people going out and buying this author's book and being led down the wrong path. I will not name the book as readers of this gobbledygook are going to spin their wheels only to find that it really doesn't work.

Let's keep things simple. That is the secret to successful trading.

At MarketClub we tend to look at the market in a very simple fashion. Let me explain; the market can only do three things: it can go up, it can go down, and it can go sideways. In life there are very few things that you can simplify as easily as that.

So using MarketClub's "Trade Triangles" you are able to determine when the market is going up, in which case you want to be long, and when the market's going down, in which case we want to be short or out of the market.

Now of course we do filter the "Trade Triangles" of MarketClub to help avoid trading losses. With any kind of trading or investing program the risk of loss is always there. The key to success is how you manage those losses. Are the losses small enough as to not bite into your capital in a major way?

Again, when you're looking at market fundamentals or other ways to trade, they really don't tell you when to get out. Obvious examples of this would be the Enron scandal or the recent GM debacle that took unwary investors to the poor house.

But it's hard to fake a market saying everything is great, when the market is heading south. So what is an investor to think? I believe you have to trust your eyes and the direction of the market. After all, that's what makes up your bottom line.

In today's video we're going to be looking at one or two markets and how the "Trade Triangles" are positioned right now. We are not predicting what's going to happen in the future. We are simply going to look at the purity of the "Trade Triangles" and how they can help investors with the most important market element of all, market perception.

As always our videos are free to view and there are no registration requirements. If you would like to comment on our blog about this video or other videos please feel free to do so. You are also welcome to participate in the many interesting polls which are very telling as to what is going on in the economy and in politics.

Enjoy the video.

All the best,
Adam Hewison
President of INO.com
Co-founder of MarketClub

26 thoughts on “It's more important to the market than Italy, Greece, Portugal, and Spain combined”

    1. Mary,

      You are correct. Some of the comments are from 2010. We like this video post so much that we decided to run it again.

      Happy Thanksgiving,

      Adam

  2. @ Michael

    It's imperative to keep in mind that the trade triangles give a general indication of trend direction. They are part of a complete trading system, the most important part of which is money management. It is a HUGE mistake to take a large chunk of your money and let it ride on a trade triangle.

    Adam has never preached that.

    When a trade triangle hits, there is a 60% chance of what Jesse Livermore called a reaction. That's an almost immediate reversal in direction (there are traders who trade "Turtle Soup" who make very good livings off of these reactions). If you've risked a small amount of your capital, no big deal. With the reaction, you get to find out if the move is the start or continuation of a trend...if not, your stop loss takes care of you. If, however, you bet a huge chunk of your bank roll, you will likely panic at the reaction loss and sell at the bottom. Worse yet, you'll repeat it trying to win back what you've lost...until you give up in disgust, a lot poorer, and very bitter at Market Club.

    I use Market Club to assess overall trend direction within the context of an absolutely strict money management system. It has worked incredibly well.

    Adam has lots of trading videos that explain all the different tools you can use and when to use them with the trade triangles.

    Bottom line: If you can't handle the inevitable small losses, you're trading too big for your account.

    Hope this helps.

    Cheers.

  3. Thanks for this great thoughts. In the 70s and early 80s I made a lot of money withe the Fundamental Analysis provided in Forbes by someone name Ann Brown (don't know what happened to her) and Ken Fisher. Now a days it is absolutely impossible to make money just based in "Fundamentals" but rather, as you have well put it on perception. Perception is reality and is equivalent to momentum. This factor is key not only in Investing but in Services.

  4. 'This is how we filter stock trades'

    These are operational rules. With them and the triangles and the market, it will be easy (just using Excel routines) for Market club to show track record(but not easy for us as we do not have the data) so we can see the number and nature of ones that goes wrong: by market etc.Or ones that go well if you like to think glass half full.

    Having been burned by one that went badly wrong, I am reluctant until I can see the frequency data on misfires.

    It is a mystery to me why you do not do track record. Maybe your technology works much better with some markets than others and you don't want to reveal that.

  5. Adam

    I would really love to see a response to the comment by Rick. I too h found Some questionable Results with the trade triangles. I really want to believe what just can't see the proof. Please advise. Thanks.

  6. I'd like the link to your blog, Doug. Please post or post on my wall on fb: alzcookin. Thanks!

  7. I enjoy your watching your presentations and have read your course on TA. You are a great teacher, and a generous man to share your knowledge. I use a simple approach and have programed my own system which works nicely, and trade on my own work. Your essays are always interesting and the feedback you get is valuable as your members are well informed, watch the market like hawks, and have solid feedback. Their input, ideas, experiences are first rate. Bring a warm winter coat, i am an hour from Chicago, (we think in time, not distance here, as you know). Getting a bit nippy. Nippy, means you can make from your car to the door where they have a hot drink and the snot in your nose doesn't freeze. Welcome back to the city of broad shoulders and Windy as always. . regards, ELVIS PS: I'll be at K-mart in the record depart.

  8. Adam - What a realistic & insightful post!!! I always appreciate your ability to tell things like they really are. I more appreciate how your insights also change with the market & events rather than digging in your heels like so many "Gurus" out there that refuse to budge.

    Proof in what you just posted - I remember back in the dot.com bubble where a stock could go up 50 points for reporting a $100mm loss whereas an established company would beat profits by spades but miss the "whisper number" by a penny and plummet 20 points. Lunacy? Yes. BUT . . . as you say - Market Perception. It can make one believe fundamentals are dead - let's hope not!!

    I hope you & your staff have a great rest of the Thanksgiving Day weekend. I look forward to your webinar on gold next week!!!!

    Chris in Chicago!!!

    1. Chris,

      Chicago is one of my favorite cities. I live there for a number of years when I was a member of the exchanges.

      Thanks for your kind words and feedback.

      All the best,

      Adam

  9. On November 12, MACD lines crossed exhibiting a down trend. Furthermore, the lines are not setting on top of one another like they had been during the month of October. They are now clearly showing a down trend for the S&P. Your trading triangles are always lagging a shift or change in the market's trend. It's now 12 days later and the MACD trend continues to hold.

    Granted, the market continues to knee-jerk; up day, down day... My question is this, how close are we to a reversing trading triangle -even thought your numbers (the score) for INX is currently at +65? and the score for SDS is -85?

    The S&P has lost over 50 pts from it's recent peak but then has been oscillating between -50 and -25 with yesterday being an up day and today looking to be another big down day. On the DJI you gave it a 'weekly' down triangle on November 16. The DJI had dropped about 450 pts and continues to oscillate between -450 and -250 from the peak. The DJI lost just under 4% and got a down triangle. The S&P lost just over 4% and nothing yet.

    We must be on the "brink" or pretty close to that. So, when will it come? How much more does the INX have to drop AND, how much more does the market have to drop before we get the "big one"? I've already been stung twice now when I abandoned my own gut feel and went with your trading triangles -only to see you issue a reversing triangle the very next day. Help me out here.

    1. OJO,

      Here's how we filter stock trades.

      The major "Trade Triangle" to watch in trading stocks is the monthly "Trade Triangle" as this triangle determines the trend. We use the weekly "Trade Triangles" for timing purposes. Let me give you an example, if the last monthly "Trade Triangle" is green this indicates that the major trend is up for that stock. You would then use the initial monthly "Trade Triangle" as an entry point and use the weekly red "Trade Triangle" as a stop out point. You would only reenter a long position if and when a green "Trade Triangle" kicked in. You would then use a weekly red "Trade Triangle" as a stop out point. Providing that a monthly green "Trade Triangle" is in place the trend is positive for the stock. The reverse is true if a red monthly "Trade Triangle" shows that the trend is down. You would then use the weekly "Trade Triangle" for entering and exiting the market

      All the best,
      Adam

  11. YOU OFTEN REFER TO THE MACD - DO YOU EVER LET THE MACD OVERRIDE THE TRIANGLE TECH AND NOT PLACE A TRADE BASED ON THE TRIANGLE SIGNAL.

    1. Anthony,

      The MACD indicator developed by my friend Gerald Appel is a very good indicator, however I prefer to just use the Trade Triangles alone. That is not to say you cannot combine the two indicators.

      All the best,

      Adam

  12. I agree, the Triangles make things simple.
    I have noticed that occasionally, when a Monthly Green or Red Triangle is triggered, there may be a bounce the opposite
    way for a correction off a double top or double bottom before resuming the trend in the direction of the Monthly Triangle,
    so I watch for the bounce before taking the trade.

    1. John,

      Thanks for your feedback

      Yes, that can happen occasionally that is why we use filters to minimize counter trend moves.

      All the best,

      Adam

  14. Thank *you* Adam. I just did it. Now a member again, and for a long while, we all hope. Keep up the great work. It was worth the money last time. I just got too cheap for my own good.

    Question:
    Do you see history "rhyming" as I do, with what happened around April?
    That pattern around that top (looking at market as a whole) sure seems the same, and for maybe about the same reasons.
    In other words, look out below and for a choppy ride down there for a bit.

    In looking at a google finance plot of the market as a whole, over a year, it's spooky how the last few days seem to be a repeat of that, just before it got ugly.
    Here. http://www.google.com/finance?q=INDEXDJX:.DJI,INDEXSP:.INX,INDEXNASDAQ:.IXIC
    (I'm a little nervous about using html tags here since there's no preview to make sure I get it right before posting)

    I'm mentioning that on my blog, which I won't advertise here unless asked (it's not that great, just a log of what I see and what I'm doing about that,
    and not for profit of any kind -- most of the log is about my science work).

    Thanks, I look forward to checking out the new tools, which I think you've upgraded since the last time I was a member.

    Doug

    1. Doug,

      Welcome back and thank you for your positive feedback.

      You are going to love our new tools when they go live.

      All the best,
      Adam

  15. I am sold on technical analysis - basically my own mix of moving averages and momentum indicators. I am trying to keep it simple and not allow daily news affect me. But I also think traders miss out if they do not consider some basic fundamentals and long-term trends. Example: Japan has a terrible demographic pyramid (too few young supporting too many old); China, which supplies most of the world's demand for rare earth elements, is limiting its exports; the standoff in Korea is heating up again. What's the effect? Wildfires and frosts affect the world's wheat crop; People are running out of food and fresh water. Nissan has come out with the electric Leaf. etc.

    I like to be aware of what is going on in the world and I try to filter out media bias. Then I use technical analysis to find entry and exit points. I use TA to be aware of patterns, rhythms and sector rotations. I won't get into any stock until I see strong TA signals.

    But to rely exclusively on TA can keep you in some markets far too long and it can encourage you to trade too often. You can be whipsawed. Some monthly signals take months to take hold and some weekly signals change the next day.

    So, I think you have to choose your battlegrounds. You have to be strategic as well as tactically proficient.

    Thank you Adam. I am a very satisfied customer.

    Tango

  16. Kudos, Adam. You're one of the two well known people I listen to. Just about everyone else who talks about markets is either trying to get you to buy what they want to sell (so you'll keep the price up as they dump) or simply clueless (those who don't know, talk, and so on).

    I have long preached that the market is people (even computers had to get programmed) and that the tape is the truth. Your triangle system takes both into account -- the metrics include what I'd call (in engineering terms, since that's what I was) the "time constant of human emotion", as well as "the tape is the truth" which is why they work so well, or so I think.

    I'd let my sub to the club expire, thinking I could go it alone -- and I can, but you know, I'm going to re-up real soon, as going it alone is a lot of work. Sometimes I do better, sometimes worse, but it's definitely more work and time away from other things I'd like to be doing.

    I happen to think that a lot of tech analysis works due to the self fulfilling nature of it -- if it tells a lot of chartists to sell, they do, so the price goes, down, ergo it was right -- not because the numbers on the charts meant it had to, but because people believe it and make it happen. I do stay away from the more esoteric junk, the voodoo, of course. And yes, the markets really only touch the fundamentals when forced to, it seems, not that often.

    The other guy I pay attention to is Todd Harrison, over at Minyanville, for another look at the picture and some philosphy. He seems an honest broker of ideas too.

    The rest, one is better off ignoring mostly, or if they are big market movers -- watch them to see what they want you to think, and then perhaps go the other way.
    They rarely give advice that's good for *you*, but for them. As an advisor once told me for example -- "watch Goldman -- don't buy them or listen to them, but watch what they do, not what they say". That was pretty good advice I think.

    Best to you and everyone else here. Be talking to you soon.

  17. Being in financial planning in Baltimore, I've been dealing with market perception my entire career. I'm not sure that removing yourself from all of this perception is best way to objectively analyze the market. Wouldn't the best way be to consider how perception is influencing the market, and then apply objective data against that to spot market drivers? Kind of like overlaying perception on reality to spot the opportunities?

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