How to be a Great Investor by "Only picking Battles that you can Win".
Think about it for a moment ... when you are investing you are in fact competing against other investors ... competing with the intent that "you are going to be the one that out-trades your competitors in order to earn an important share of the profits". So, the old adage about "only picking battles you can win" fits the challenge of investing very well.
The problem is that your "competition" includes Wall Street firms, professional traders, Goldman Sachs, J.P. Morgan, Hedge Funds, Mutual Funds, Money Managers, and Institutional Investors (for the sake of simplicity, we will hereafter refer to the collection of these groups as "Wall Streeters"). All together, they spend Millions of Dollars on research and data, and up-to-date politically important information. Even if you spend 5 to 10 thousand Dollars, you will NOT be able to compete with Wall Streeters, UNLESS you use the following strategy:
The Winning Strategy: When Wall Streeters pay for information or research and find the information is critically important, they ACT on it by Buying or Selling stocks. With this advanced information, their timing is better, they earn more, and they have more control over their investments, their profits, and their risk levels.
Here is the Key: If you were able to get the same informationat the same time that Institutional Investors got their's, then you would have the same advantage. The key is that there is a way to have the same advantagewithout spending the thousands to millions of dollars that they do.
The KEY to having the same advantage that they have: All you have to do is carefully follow what they do and when they do it, and then do the same thing.
So, how do you KNOW what they are doing and when they are doing?
But ... there is no reason that you can't initiate the same actions that they do.
If you got the same information at the same time Institutional Investors got their, then you would have the same advantage. But ... there is no reason that you can't initiate the same actions that they do. All you have to do is carefully follow what they do and when, and then do the same thing.
We learned long time ago, that when information is really important, Wall Streeters know about it before others and they ACT on it. Here is the key for a great strategy: "If someone is right behind them and watching when they initiate a new action, then there is no reason that they couldn't initiate the very same actions". You DON'T need to spend the millions they do, and you don't even need to know exactly what they found out. You just need to copy their actions.
OR SAY THIS ... And think about this ... if you just copy what they do, then copying their actions, you are doing the same thing they are doing without paying the millions of Dollars that they had to spend.
Following what Wall Streeters are actually doing is the hard part, but we have been doing it for a long time. The reality is, that there are only a few things that really matter, and there are only a few actions to know about that really tell you what Wall Streeters are doing. The reason for this is because all their actions or re-actions involve the use of money.So the investing secret is: "Follow their Money trails" and then do the same thing they are doing.
You Can Win, Here's How ...
Here is what it boils down to: "For the smaller investor, or the non-Wall Street investor, the winning strategy is to watch what Wall Streeters are doing with their money and then "copy what they are doing".
And ... What exactly what does one need to know in order to follow a Wall Streeters?
The answer is 3 things:
#1. Watch how much Institutional Investors are Buying and/or Sellingevery day. Institutional Investors account for the ownership of over 50% of the stocks traded every day. Notice I said ownership. Some will point out that High Frequency Traders trade most volume every day. Yes they do, but they trade in millisecond time frames trying to take advantage of small price spreads and differentials. They are renters, not owners because at the end of the day, the Institutional Investor have ownership of their buying trades. [See Chart #1 for how much Institutional Investors have been Buying on Selling daily.] Bonus Trading Tips Report ... This Special Report explains WHEN Institutional Investors are about to shift from Distribution to Accumulation. Do NOT miss this important study ... here's the link: Stock Market Tips #2.
#2. Follow the Money. As Jesse Livermore described it best in the 1930's: "The stock market is all about money. If money flows in, the market goes up. If money flows out, the market goes down." Livermore was worth $100 million after the market crashed in 1929. Some will say he made a lot and lost a lot. They forget that in spite of any loses, he could afford owning a series of mansions around the world, each fully staffed with servants, a fleet of limousines, and a steel-hulled yacht for trips to Europe. The big question is how do you measure Inflowing Liquidity? More importantly, how can you see what is happening to the Liquidity in the Stock Market?
So, the big question is how do you KNOW if Liquidity in the market is increasing, decreasing, in Expansion, or in Contraction? One thing is for sure ... if Inflowing Liquidity is in an up trend, you will miss out on profits if you are not invested. And if Inflowing Liquidity is in a down trend, you will get killed if you have not sold your long positions. (The time to short the market is when Inflowing Liquidity is in a down trend.) [See Chart #2 for the daily amounts of Inflowing Liquidity.]
#3. Forget the Indexes ... instead, watch what is happening to the "core holdings" of Institutional Investors. What? Forget the Indexes? There is a reason for that ... some indexes are swayed by a few stocks, some are not. Some are played with, some are hedged, and some are used in option spread tactics ... and, some are not. The "noise" and games going on are hard to see and figure out a lot of the time. But the "core holdings" of Institutional Investors is not a real index so it can't be toyed with, used as a hedge, or manipulated by anyone. And yet, it is an accurate picture of what is happening to the market. What are the Institutional "core holdings"? They are the group of stocks "that make up the majority of the Institutional Investors wealth investments", and collectively they give a true picture of what is really happening to the value of stocks in the market. Sure, there are plenty of other important things about the stock market, but if you get any of these 3 things wrong, you get the whole picture wrong and you lose money. [See Chart #3 for the daily trending and changes to the Institutional "core holdings".]
My 3 Favorite Charts ...
Every day, I pay special attention to 3 charts in particular. The data on these charts are are very important because they frame what is going on behind the scenes in the stock market.
Favorite Chart #1 ...
My first favorite chart show's how much Institutional Investors Bought and Sold each day. Since Institutional Investors own over 50% of the stocks in the market, what they do determines what happens to the stock market. In the chart below, you can see how Institutional Buying and Selling affects the stock market's trending. [Quick note: When the blue (Buying) line is above the red (Selling) line, then Institutional Investors are in Accumulation. Also, the opposite is true.]
Favorite Chart #2 ...
My second favorite chart show's how net/net Inflowing Liquidity that has occurred each day. Net/net Inflowing Liquidity is defined as the "amount of left over liquidity entering the market after covering the amount of selling that day".
So, an up tick on Inflowing Liquidity means that the market had more than enough to support the day's selling, and the excess is what drives the market up. Jesse Livermore described it best in the 1930's: "The stock market is all about money. If money flows in, the market goes up. If money flows out, the market goes down." Livermore was worth $100 million after the market crashed in 1929.
In this Liquidity chart, I also pay attention to the trend such as: "The down trend in Liquidity last May resulted in the Liquidity falling into Contraction, and that took the stock market going into a correction."
Favorite Chart #3 ...
A third chart I pay attention to is what is going on with the Institutional "core holdings". The core holdings represents the majority of stocks that Institutional Investors own at any one point of time. Expressed as a index, it can't be owned or manipulated by any outside groups. Its accuracy at pinpointing tops and bottoms has been amazing, and it is a good representation of the stock market and what is really happening to it.
Below is a Point & Figure chart of the Institutional "core holdings" from December 19, 2011 to October 22, 2012. Even though this chart show's 30 minute Point & Figure increments, it can accurately cover long periods of time.
Favorite Chart #4 ...
Okay, one more chart. Actually, this one is a matrix showing 9 important, underlying market conditions over the most current 3 day period. In reality, the matrix is like a barometer of the underlying net health of the stock market. If investors are in a hurry, they can look at our Daily Summary, or the change in color codes. If investors want more finite readings, they can read more about what each of the 9 matrix cells say about individual conditions for the specified dates in Section 4 of our subscriber updates. Here is a typical daily posting:
Underlying Market Conditions:We had 0 Negative readings, 0 lesser Negative readings, 0 Neutral readings, 5 Positive readings, and 4 Lesser Positive readings. >This is a quick overview of underlying conditions over the past 3 days."
A majority of Unweighted Positive Strength stocks above the Equilibrium line. (Based on a 20 day movement period.)
Unweighted Positive Stocks showed that 70.00% of the S&P stocks had Positive Strength.
Unweighted Positive Stocks showed that 72.00% of the S&P stocks had Positive Strength.
Unweighted Positive Stocks showed that 70.60% of the S&P stocks had Positive Strength.
2. A Comparison of the number of Very Strong and Very Weak Feeder stocks.
The # of Very Strong Feeder stocks higher than the the # of Very Weak Feeder stocks.
There were more Very Strong stocks than the number of Very Weak stocks. (61 vs.14)
There were more Very Strong stocks than the number of Very Weak stocks. (110 vs.14)
There were more Very Strong stocks than the number of Very Weak stocks. (126 vs.28)
3. New Highs Trender
At 128 (target is 180)
At 178 (target is 180)
At 198 (target is 180)
4. New Highs Raw Data
50 = neutral.
100+ is positive;
150+ is target.
178 ... A Neutral reading.
228 ... A Neutral reading.
217 ... A Neutral reading.
5. New Lows
At 11 (Below 28 wanted.)
At 9 (Below 28 wanted.)
At 10 (Below 28 wanted.)
6. Institutional Buying & Selling Action
Institutions were in very low Distribution.
Institutions were in low Accumulation.
Institutions were in low Accumulation.
7. Raw "NET" Institutional Buy/Sell
Institutions were in very low Accumulation.
Institutions were in low Accumulation.
Institutions were in low Accumulation.
8. Long Term Liquidity Inflows
Liquidity Inflows had an up tick in Mid-Quadrant 1 Expansion territory. (Broke above triangle.)
Liquidity Inflows had an up tick to Upper-Quadrant 1 Expansion territory.
Liquidity Inflows had an up tick in Upper-Quadrant 1 Expansion territory.
9. Hourly SPY vs. the VIX
The VIX is subject to its behavior analysis.
The VIX closed at 15.22. (17.0 Resistance today.)
The VIX closed at 15.07. (16.85 Resistance today.)
The VIX closed at 15.03 (16.8 Resistance today.)
While the above charts are important, there are over 36 important daily charts that cover Buy and Sell conditions for the SPY, QQQ, and IWM. In addition, the daily updates also cover many other areas like the Dollar, the Banking Index, 10 and 30 year bond yields, the Up/Down Trending Model, and the Super Accelerator Model.
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other copy to think about ...
Allow me to explain ... Longer term investors, like Institutional investors, like to make decisions with long term horizons like 9 to 12 months out. At the opposite end of this world, are high frequency traders that need high speed access and information, and these people make trades in millisecond time frames.
Both groups rely on data ... accurate data, new data, fast data, and data that nobody else has. Data that nobody else has can be very expensive, and could even cost millions of dollars a year. But if you think about it, you really do not need to buy and disseminate expensive information.
\ ... And think about this ... if you initiated the same action that they did, then you did the same thing they did, only without paying the millions of Dollars that they had to spend.
More importantly, how can you see if the Liquidity entering the market is increasing, decreasing, in Expansion, or in Contraction?
Bonus Trading Tips Report ... This Special Report explains WHEN Institutional Investors are about to shift from Distribution to Accumulation. Do NOT miss this important study ... here's the link: Stock Market Tips #2.
To be a Great Investor, Only pick Battles that you can Win ...