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Continuation of part 4

Let us study a sample market composite to gauge full understanding.  

This chart requires a little bit of explanation in terms of being able to mimic the actual stock market.

1. The chart above represents a sample  market composite over a 5 year period of time.
2. Please note 5 separate cycles located under the green line. Each line of different color represents a different cycle working over that period of time. Note that these cycles vary in amplitude, and most importantly, in spacing. While some cycles are moving up, others are moving down.
3. As these cycles move over time they interact with each other by either diluting each other or by amplifying energy in any particular direction.  For instance, major bull moves on the green line occur when most cycles are pointing up.
4. As you can see from the chart, all of these cycles started at different points in time.
5. The Green Line is the composite cycle of all cycles coming together. It is the summation of all of the moves, either up and down. By combining cycles in such a fashion we come close to mimicking the actual stock market move over that period of time.
6. The chart above is one step removed from getting the exact composite. That is done by multiplying the composite above (green line) by the main trend at the time. When we do that  properly, we end up with an extremely accurate representation of the stock market.

For instance, an analyst working with this composite would know not only the structure of the upcoming market, but the exact turning points and the length/velocity of any upcoming move. When done with precision, the final output of the composite above should mirror the actual market movements with scary accuracy. Of course, the same type of analysis can be applied to individual stocks. Before we can put together an actual real life composite, it is important that we first take a look and study all of the major individual cycles.  

To be continued…..

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Timing The Market & Advanced Cycle Analysis 

Continuation of part 3

The problem with traditional cycle analysis is threefold. First, the use of 2-Dimensional price/time stock market charts to track the cycles. This book makes it clear that the stock market is a much more complex phenomena that moves in at least a 3-Dimensional environment. As such, when the stock market cycle analyst begin to use traditional cycle analysis on a two dimensional chart, they are nearly measuring the shadow of the overall cycle and not the cycle itself.

Second, the cycles are not static, they are dynamic.  They are constantly rotating, adjusting and realigning themselves within the structure of the market.  While it might sound complicated, it is not. It simply means that while the overall cycles remain intact, they constantly change their starting position to realign with the 3-Dimensional structure of the market. As various points of force occur in the market place, these cycles tend to realign themselves to confines of the lattice structure developing in the stock market at the time.

Finally, there are multiple cycles working in the stock market at any given time, ranging from hourly cycles to cycles lasting decades. An analyst performing cycle analysis must be aware of this fact and know which cycle is the predominant one during the period of study.  Doing so would allow the analyst to setup a proper index composite that should mimic and predict the market in great detail. An illustration is a must to cement all 3 points.

Let’s take a look at the  2000 top, 2003 bottom and 2007 top.  Let’s assume that during this time there were 10 different and major stock market cycles moving at the same time, and when combined, represent all major ups and downs of the market. The dates above are the major inflection points in the market. They represent the lattice completion points in the 3-Dimensional environment.  That is precisely the points where the cycles realigned themselves in order to form the new cycle composite.

When the market hit the 2000 top, most cycles that worked prior to that period had stopped working. Instead the cycles realigned themselves at the 2000 top to build a completely new cycle composite going forward. These cycles represented the market between 2000 top and 2003 bottom. Further, these cycles realigned themselves again at the 2003 bottom and 2007 top. That is the primary reason behind why these cycles work for a period of time and then break down to never work again.  Once the inflection points and the cycles are understood, an analyst simply realigns such cycles in a predictable fashion in order to time and predict the market with great precision.

Let’s study a sample market composite to gauge full understanding.  

To be continued……

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Timing The Stock Market (Part 4)

Continuation of part 2

Now, before we jump headlong into cycle analysis, we must first look at and address three primary cycle issues.

Issue #1: Why do cycles exist in the stock market?

To begin with, everything in nature is cyclical. If we wish to get very technical and look at the fundamental particles we will learn that everything in nature is energy. That energy itself is in the constant state of cyclical movement where the primary difference between various elements and matter is the rate of vibration or oscillation (which in itself is a cycle).

Since everything in nature is cyclical and the stock market itself represents a natural growth spiral, we can safely assume that the stock market is cyclical as well. Yet, it is a little bit more intricate than that. It is not necessarily the stock market that moves in cyclical fashion, but the human psychology that underlines the stock market.  If you study mass human psychology you will soon learn that men go on repeating the same mistakes over and over again. Not only are they incapable of learning from history, but they tend to repeat exactly the same mistakes that their parents and their grandparents had made. .  

When it comes to the stock market and mass human psychology it is very easy to see how people pool their emotions (or mass delusions) together to justify what the stock market is doing. For instance, 2000 and 2007 stock market tops present us with a perfect opportunity to illustrate just that. In both cases it was clearly visible that market participants are suffering from a mass delusion. With the tech stocks selling beyond any reasonable valuation in early 2000 and with the credit/housing market feeding a massive speculative bubble throughout the entire economy in 2007.    

From bottom to growth, from growth to excess, from excess to a decline/collapse. Rinse and repeat. Each one of these cycles servers their purpose, from start to finish. They always had and they always will, for one simple reason. You cannot change the human nature of greed, hope, fear and panic. It will always be within us. The tricky part is identifying these cycles, how long they will last and more importantly, where do they start and end. This section clearly illustrates how to do just that.

Issue #2: Why do some cycles work perfectly fine over a certain period of time only to break down and never work again?  

As mentioned earlier, this issue has caused major headaches for most cycle analyst since the day their craft was born.  At times analysts are able to de-trend various cycles out of the market that, at first glance, work perfectly fine.  In fact, they might work so well that an analyst might get too comfortable with it. The trouble starts when these cycles brake down and stop working. Eventually they all do. Most analyst have been trying to figure out why that happens, thus far without any luck.

To be continued……

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Timing The Stock Market (Part 3) 

Continuation of part 1 

Imagine for a second that you are watching the New York Philharmonic Orchestra. As the show starts you see over 50 musicians sitting on stage and playing their musical instruments. The instruments themselves vary across the board.  There is a piano, dozens of violins, trombones, cellos, bass, etc…  As musicians begin to play, beautiful and harmonious music begins to flood the concert venue. If we stop at this juncture, we would miss an important clue that can help us time the markets with great precision.

As the music plays, a number of very important developments occur behind the scenes. To begin with, music itself is nothing more than a vibration or a wave or a cycle or an oscillation.  Each musical instrument and each player produce a range of vibrations while playing their instruments. That creates music. So a single musician will produce  a rate of vibration/oscillation that at least in technical terms is identical to the structure of the cycle. Now, having 50 musicians in our orchestra simply means that at any given second there are 50 different cycles (vibrations/waves) being created by 50 different musicians and instruments. They vary across the board and are as diverse as possible.

Yet, they all come together to create beautiful and harmonious music.  I cannot stress this enough. All 50 of the cycles (vibrations/waves)  unify  into 1 primary cycle by the time music reaches your eardrum.  No longer are you listening to 50 different vibrations, you are now listening to only one.  You are listening to the summation of these vibration, to the final result.  Finally, this end product or the summation of all of these cycles could be represented on the chart as a singular wave moving up and down over time.

What does this have to do with the stock market?

If you are to chart the final result or the final musical wave generated by the 50 musicians above it would look identical to the 2-Dimensional chart of any given stock or of the overall chart of the stock market.  It wouldn’t be identical, but it would look identical as if the music you have just heard is being tracked by the stock market charting service. This yields an important clue when it comes to the stock market cycle analysis.

Basically, there are many different cycles working in the stock market at the same time. Their range, structure, power and amplitude are as diverse as you can imagine. While some cycles last for decades and even centuries, others oscillate every few minutes. However, once we identify all of these cycles and put them all together, we end up with an exact representation of the overall stock market. When I say exact, I mean exact.

Let me repeat this. If the cycle structure is fully understood and constructed properly you can build an exact replica of the stock market. Not only for the past, but also for the future. Once the cycles are known you can predict the exact structure of all upcoming stock market moves to the point and to the day. Confirming both the fundamental and 3-DV analysis work described earlier.  

To be continued…… 

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Timing The Market With Cycles (Part 2) 

Thus far we have looked at the3-Dimensional stock market analysis as the primary tool in predicting the stock market or individual stocks in both price and time. Yet, there is another way to perform the same type of analysis.  It is called cycle work.

At the same time it is not the typical cycle work associated with the stock market. Relatively speaking cycle analysis has been around for as long as the stock market has been opened. People have been using various cycle constructs to try and predict the market.  Thus far without too much luck. Any analyst working with trying to time the markets through the use of cycle work would soon tell you that at times his cycles work perfectly fine, being able to predict the market with great accuracy and at times, they don’t work at all.  Believe it or not, there is a reason for it and that reason will be discussed in greater detail shortly.  

However, before we go any further we need to define what cycle analysis really means. In traditional sense of the word, it means studying various time cycles and then trying to apply them towards the stock market.  The simplest form of such exercise is identifying one market cycle and then trying to fit it into your market forecast. As a hypothetical example, an analyst studying NASDAQ market structure is able to determine that all stocks in the index go up for 14 trading days and then decline for 5 trading days. Then they go up for another 8 trading days and then decline for next 3 trading days. Thereafter, the cycle repeats itself indefinitely.

Of course, no such cycles exist, but it gives you an idea of how you should think about cycles. On a more complex level an analyst might put together hundreds of various cycles in order to try and predict not only the time but the value of the move.  While such cycle analysis is fairly complex, it does produce interesting and sometimes incredibly accurate results. The keyword is….sometimes.

Which begs the question, why does cycle analysis only works on limited basis?

The simple answer has to do with the 3-Dimensional analysis discussed in the previous section. The cycles do not work very well or they do break down after a certain period of time because they are being applied in the wrong medium. In this case, the 2-Dimensional chart of price moving over time. As mentioned earlier in the book, the 2-Dimensional chart construct is nothing more than a shadow of the real stock market movement. As you can imagine, no proper outcome can come from studying the shadow as opposed to studying the real move.

At the same time, when we apply cycle analysis to the 3-Dimensional construct of the market we begin to see a completely different picture. We begin to see periodicity in the cycle analysis that can be used to predict the markets with great accuracy. Not only that, but we gain a further understanding of how the markets truly works. Let me give you an example.

To be continued…… 

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Timing The Market With Cycles 

Continuation of part 11

Avoid Loss Averaging: Contrary to a popular believe, it is not a good idea to buy more stock when the price declines after your purchase.  Buying more at a discounted price means you are going against the main trend and not with it. While you lower your overall purchasing price, the main issue remains. The main trend is down. Instead, you should average up when the stock price is going up. That way you are going with the trend.  

Now that we have looked at the overall rules to the profitable stock market operations, let’s take a quick look at a simple set of specific trading rules.

Rules For Trading In Stocks

RULE 1:  Buy at new high prices or old top levels.

RULE 2: Buy when prices advance above old low prices.

RULE 3: Sell when prices decline below old top levels or high prices.

RULE 4: Sell at new low price levels.  

RULE 5: Wait to buy or sell until prices CLOSE above old highs or below old lows on the daily charts. Closing price is incredibly important.

RULE 6: Use stop losses. Your capital and your profits must be protected at all times with STOP LOSSES. Implement stop losses at 1-3 points above or below your original price and at the time of the original trade.

RULE 7: Do not lose money.

In this section we have looked at 3-DV analysis, triangulation and various trading rules associated with trading the markets. By performing 3-Dimensional analysis for the DOW between 1994-today I have demonstrated without a shadow of the doubt the hidden structure within the stock market. Once that structure is fully understood (well, even before), an exact forecasts could be made. Once the analyst understands the lattice structure of the market, he can calculate it 1 year, 10 years or 100 years into the future with astonishing accuracy.

Further, we have looked at triangulation and various trading rules to minimize the risk associated with 3-Dimensional analysis.  By following all the rules described above, any stock market participant should be able to profit greatly. After all, an analyst using the work above in an appropriate fashion should know what the market will do and should act accordingly. In the next section we will look at another powerful tool to time the market with great precision. 

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Stock Market And 3-Dimensional Analysis (Part 12)

Continuation of part 10

Buy At New Highs: Believe it or not, but buying at new highs is the most profitable way to make money in the market. Most people believe that they must buy at the lowest price or in the valley. That couldn’t be further from the truth. By buying at the new high you are moving with the main trend.

Sell At New Lows:  In a similar fashion, selling or selling short at the new low is the best possible position to exist the stock. It confirms that the trend has changed and gives you ability to exit your trade at a good price.  More importantly, it allows you to trade with the trend and not against it.

Never Commit To Anything:  Never attach your forecast to any fixed outcome. If you do, you will shift from the position of power to the position of fear and hope.  Opening up your trading strategy to risk and losses. Instead, remain flexible and move with the market even if your forecast indicates otherwise.

Move Stop Losses:  As the market or any given stock continue to move with the main trend you must continue to move your stop losses up or down to avoid unexpected developments and to protect your profits.  By doing so you eliminate unnecessary risk of losing money.

Don’t Be Afraid To Be Out Of The Market:  There is absolutely nothing wrong with being out of the market completely.  Sometimes for prolonged periods of time. It is better to sit on the sideline than to lose money. Particularly when the trading situation or the direction of the financial instrument you are looking at is unclear.

Don’t Wait Until The Trend Changes:  DO NOT hold your losing position in hopes of a trend change.  That is how people lose most of their money.  For instance, the bears who have been holding short positions throughout 2013 have been decimated (even though they will eventually be right).  Once again, always move with the main trend.

Get Out As Soon As You Realize You Have Made A Mistake:  Even if your in-depth research shows one thing, the market might do something completely different.   At times like this you might realize that you have made a mistake.  Do not hold your position in hope that the market will reverse itself and allow you to exit at a better price. Liquidate your position immediately.  

Always Wait For A Confirmation:  Do not establish position until and unless your work is confirmed by the market itself.  In most cases the market will do so by setting new highs or new lows. Only after receiving such a confirmation should you establish a trading position based on the main trend of the market and/or based on your own research work.

Avoid Hope & Fear: This is probably the main reason why people lose money in the stock market. They trade and/or invest on emotion rather than technical, timing or fundamental work. They hope, pray and fear instead of following exact steps.  Do not be one of these people. Never trade based on hope or fear. Follow your rules.

To Be Continued…..

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Stock Market And 3-Dimensional Analysis (Part 11)

Continuation of part 9

Shortcut Two: Trading Techniques

The other way to avoid problems and/or to reduce risk when the lattice structure of the market is not yet known is to implement a strict trading regiment that would help you avoid large mistakes. By implementing strict trading rules and procedures you are able to eliminate all guess work out of the equation. In other words, while the 3-DV analysis gives you the ability to predict the markets, strict trading rules make sure you pull the trigger at the right time.

The rules below are a very simple strategy of getting in and out of stocks. Yet, it produces very powerful results while minimizing risk when you combine it with the fundamental, 3-DV and triangulation analysis  described above. First a few rules.

Avoid Low Priced Stocks:  While it is possible to make a large amount of money with these stocks, for the most part these stocks remain at low levels for a very long time.  Sometimes forever.

Avoid Slow Trading Markets or Stocks:  These are the financial instruments that are stuck in a trading range.  Do not invest in them until and unless the trend is definitely broken either to the upside or the downside.

Concentrate On Fast Moving Markets or Stocks:  This is where most money is made over the shortest period of time. Once the primary trend is identified and the 3-DV analysis work is done, buy the best stocks in the fastest moving industry.

Never Guess:  Take the guesswork (gut feeling) out of your decision making process.  Develop strict trading rules that are followed 100% of the time. While the analytical framework described above is followed, you should never guess if you got it right. Let the market and your trading rules put you in and take you out.  

Always Follow The Main Trend: You will always make money if you follow the main trend.  Either up or down. Remember, stocks are never too high to buy if the stock market is going up and they are never too low to sell if the trend is pointing down. 

Always Use Stop Losses:  I cannot overstate this enough. Always use stop losses to protect your capital. Even if you reach an advanced level in the 3-DV analysis described above, always use stop losses to make sure your work is correct.  Let the actual market prove if you are right or wrong. In the meantime, your capital base will remain save.  

To Be Continued…..

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Stock Market And 3-Dimensional Analysis (Part 10)