Buy Low, Sell High, Go Short & Cover

Continuation from yesterday……(Why You Should Know Exactly Where You Are)

Identify The Cyclical Composition Within Your Time Frame:

Attempt to identify exactly where you are in the above mentioned cycle. Bottom, bull, top or bear. Typically, the longer the time frame you are working with the easier it is to identify exactly what part of the cycle is working in the market at the time. If you are working with short term cycles, simply understand that multiple short-term cycles will complete themselves within the confines of longer cycles. For example, one long-term completed cycle on the Dow would be a bull/bear market of 2002-2009. Yet, it was within the confines is this larger cycle that multiple short-term bull/bear moves developed at the same time. In fact, a day trader might see as many as 4-5 small daily cycles develop on a daily chart.

Identify Where In The Cycle You Are (bull or bear).

Based on the time frames you working with, determine exactly where in the cycle you are. For instance, if you are working with weekly and monthly charts, identify if the weekly/monthly cycle is in a bull or bear market or distributing/consolidating.

Apply Other Time Frames For Confirmation:

Consider other time frames before deciding where in the cycle you are. For instance, if you are trading based on daily charts it would be helpful to consider what weekly and monthly charts are indicating. While the market might be in a 5 day bull run or a bounce, weekly and monthly charts might suggest you are in the midst of a bear market.

Doing all of the above should give a fairly good indication of where in the cycle you are coming in. Allowing you to take an appropriate trading position in the process.

For example, today’s (September 16th, 2014) market environment presents us with a perfect analysis opportunity for the Dow Jones. Here is the sample analysis to show you how to determine exactly where in the cycle we are and what positions or entry points are optimal.

Desired Trading Time Frames:

Monthly and weekly.

Cyclical Composition Within The Market On All Time Frames:

Long-Term: Today’s bull market started in March of 2009. The long-term term trend remains bullish for the time being. All markets are near all time highs.
Intermediate-Term: Monthly charts remain positive for the time being.
Short-Term: Weekly charts remain slightly positive. Although signs of possible distribution and downtrend shift are present.

Warning Signs:

Most long-term bull market cycles do not last longer than 5 years. Current bull market has been in existence since March of 2009 or 5.5 years. Suggesting that the market might be topping.
Monthly charts show a possible period of distribution that started in January of 2014. In other words, the market has shifted from a fast moving bull market into a flat market. Suggesting distribution.

To Be Continued Tomorrow……….