Market Strategies
Playing the market involves more than just signing checks.
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To be competitive in the market, you have to make up your mind which game to play -- types of securities you wish to trade and whether you wish to be a short-, intermediate-, or long-term trader. You need to specialize. There is too much data out there and too much to learn to be able to keep on top of it. Preferably, a specialty would be an arena in which you could develop models to get the necessary information to trade effectively. For example, an engineer friend specialized in electronic stocks and played them short-term. I'm now specializing in gold stocks. You need to understand the factors that affect the prices of your securities. You should also be aware of the interactions between your market specialty and other markets.
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Within the broad framework of the market setting, there may be special environmental conditions that can change the effectiveness of selected strategies and therefore call for changes in approach.
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To be successful, you not only should know what transactions are available, you should also know how and when to make them. It isn't enough to select a trading market. You have to decide on a trading time frame -- the period of time to get in and get out of the market. Your choice of a time frame more or less depends on your temperament, financial circumstances and objectives.
An easier way, of course, is to stay with select funds and let the fund manager take care of all the details. But you still need to decide which type of fund to be in, and find a manager you can trust to make money for you.
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If you do the work yourself, it's important to time your trades properly -- to get in or out of securities at the most opportune moment to make a reasonable profit. But that's a lot easier said than done. Selling is as tricky as buying -- maybe worse. But buying right probably makes selling easier. Timing is important.
Buying at the top and selling at the bottom is definitely not recommended, unless your plan is to lose money. It's one thing to "let your profits run" when prices are consistently moving up. But it's quite another thing to hold stocks through a long bull market, only to have to sell -- because you need the cash -- when they've fallen back to a low value because of a bear market.
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To do well in the markets, you have to develop a point of view, a framework, a theory or model of the market(s) to be able to read it. This gives you a more rational basis for deciding what and when to buy or sell. This, too, is easier said than done! It may even be wrong-headed, if Ney is right.
Models are repositories of information. Your aim is to get information today about tomorrow. Models bring a semblance of meaning to the systems -- they help make sense of things.
The purpose of building a market model (a trading system) is to extract information that lets you make better guesses. Whether determined by specialists or broader market forces, the direction, or trend, is no simple thing. Models yield information pertinent to profits. The kind of model used determines the kind of information you get -- examining what is known as the price history, or chart of the ongoing price structure of a stock or index.
A cyclic model, for instance, extracts cycle information from the price charts of indices or individual stocks, using, for example, spectral analysis as the analytical tool. Intermarket analysis, on the other hand, generates information about the relationship among different markets. Other models elicit still different collections of information deemed to be pertinent to price prediction. Some of them can be accessed through my Applications section or via Playing the Stock Market.
Unfortunately, there is no single model that provides a basis for rational investment. There are many different views on how it works, what the forces are, and how the forces move prices. And there are the many lies and scams.
Models span the globe in their variety. Each view provides a basis on which to forecast -- to guess, really -- the price action of stocks, or the flow of money. There are many potential market indicators. This may, in fact, be what makes the market. In these pages we look at a variety of models and many building elements. The hope is to develop a unified view of the markets. But it may be just a pipe dream.
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