- Money Morning Australia

The Single Best Piece of Advice for Stock Market Traders Today


Written on 17 February 2012 by Kris Sayce

The Single Best Piece of Advice for Stock Market Traders Today

The biggest danger for a stock trader is getting caught up in stock market hype.

You can be the most bearish trader there is, yet a few days of seeing the stock market cranking up can make you question yourself.

The same goes for bullish traders. They think the stock market is going to the moon. Yet a couple of days of big sell-offs and they press the panic button.

The thing is, you don’t know for sure which way the stock market will go until it’s gone there. Sounds obvious right? But that’s why it’s important as a stock trader to stack the odds in your favour.


And that usually involves technical analysis.

What the Stock Charts Reveal
 

Take a moment to look at the stock chart below…

S&P/ASX 200 index
Click here to enlarge


Source: Google Finance

 

 

To the untrained eye, it may not make a lot of sense.

But look again. What can you see?

You can see the S&P/ASX 200 index is down 16% from the April 2011 peak. (And it’s still down 40% from the 2007 peak.)

You can also see it’s up 8% from the closing low in September.

But you can also see a whole bunch of other rises and falls. With all these ups and downs, how can anyone make any sense of where the stock market is heading next? And how can you know which ups and which downs are more important than the other?

That’s where you need a trained eye. And that’s why we always turn to our in-house technical analyst Murray Dawes. Murray’s spent 20 years looking at stock and index charts.

So that even before he’s started drawing lines on the chart he’s got a good feel for where the stock market could go next. Notice we say, “could”.

Murray’s analysis is all about probabilities rather than predictions (as you’ll read below in an extract of a chat we had with him this morning).


Finding a Level

 

 

Since last August, the stock market has done little more than trade around a few key levels. It’s what Murray calls the Point of Control (PoC). In simple terms, it’s the mid-point of a high and low range on a chart.

(Murray explains this in more detail in his free weekly stock market update videos. Click here to watch now…)

It’s from this point that all the stock market action happens. It’s a gravitational pull if you like. Unless the stock market has enough energy (either up or down) to break free of its pull, it will always move back towards the PoC.

The thing is there isn’t just one PoC. Depending on the timeframe (minute, hourly, daily, weekly, monthly… even yearly charts) a PoC always forms.

And now, the stock market is forming around a PoC that has driven it from as far back as last August. It’s the green line marked on the chart above.

As Murray notes below, “If the ASX 200 can bounce from this Point of Control at 4180-4200 (as it seems to be doing this morning) and if it can close above the 10-day moving average at 4239, that will be an intermediate trend buy signal…”

There are a couple of ifs in there. As we say, Murray’s analysis is about probabilities not predictions. It’s about figuring out what is most likely to happen based on recent price action.

And right now, with the stock market trading at the key PoC, we’re at a point where the stock market could see a return to volatility and go either way.

Bottom line: as a stock trader, you’ve got to keep on your toes – especially when using leverage. Because even a small move can put you under water quickly.


Stay Neutral Until the Time is Right

 

 

Look. We won’t pretend to know everything there is about technical analysis, that’s why we rely on Murray for that stuff. But even as a fundamental investor it’s important to know what the technical guys look at.

At the moment, the stock market is at a key point that could push it in either direction.

And based on what Murray tells us, it means you should have a neutral trading portfolio (a mixture of long and short trades). So, when the stock market turns one way or the other you can quickly add to your trades and benefit from the move up or down.

That way, with trades already in place, you can be almost assured of not getting caught up in the hype to buy or sell at the wrong time.

Cheers.

Kris.

Related Articles

The Conference of the Year for Australian Investors

The Lesson You Must Learn as a Stock Trader

The Brave New (Broken) World for Stock Traders and Investors



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the investment director for Australian Small-Cap Investigator, Diggers and Drillers and Revolutionary Tech Investor. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays. Read more about Publisher and Investment Director Kris Sayce.

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au




FREE INVESTMENT REPORT: Why Dividend Stocks Are The Key To Retirement Wealth


In this report discover how dividend stocks can give you income long into retirement — even if stock prices don’t rise.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

New Frontier Investor

The last investment megatrend birthed stock gains of 11,095%, 20,621% and 50,760% over 20 to 40 years.

If Kris Sayce is right, gains from this next megatrend won’t just reach those heights...

They’ll SURPASS them...

To see why, click here.

Iron ore leadgen

  • ^NDX3967.244+2.08 - +0.05%
  • ^FTSE6788.07-3.48 - -0.05%
  • ^AORD5563.400-6.500 - -0.12%
  • ^AXJO5569.500-7.900 - -0.14%
  • AUDUSD=X0.9413
  • USDJPY=X101.854

PAN [predict literally ban]

interest rates leadgen

Australian Small-Cap Investigator

Why Holden’s future lies
beneath the soil in
Tasmania…

 
And not just the future of Holden…but Toyota,
Hyundai and Mazda too


CLICK HERE FOR THE FULL STORY

investing success leadgen

TDR [war in the pacific ban]

Resource Sector leadgen

Gowdie Family Wealth

Which type of family are you?


  1. The kind that ends up in court
    battling over inheritance money…

  2. Or the kind that knows how to
    protect, pass on and grow wealth forever.

Click here if you want the kind of family
that grows its wealth for generations.

The Money For Life Letter

A giant wrecking ball is about to smash Australia’s retirement system to smithereens...
 
And unless you take the evasive action outlined in this Special Issue, everything you’ve saved and invested over your whole working life could soon be GROUND to DUST.
 
Click here to read.

Gold Stock leadgen

Revolutionary Tech Investor [BANNER moonshot]

Graphic Ad 1 – Blue Chip Stocks Report


More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

If you answer ‘yes’ to the following questions, then you’re hoarding your investments. Don’t despair [Read More...]

Most large super funds have limits on where they can invest superannuation. This means many investor [Read More...]

Russia and its supporters have nothing to gain from attacking civilians. Russia and Putin were winni [Read More...]

You owe it to yourself take this advice. But even if I’m right and you act now, you may not be able [Read More...]

New Zealand may not be an emerging market, but it’s highly leveraged to growth in emerging markets. [Read More...]

China’s moves are as much about food security as they are national security. Whether its fish, fuel, [Read More...]

The real estate and credit bubble blew up in 2007. And now, prepare yourself for the biggest blowup [Read More...]

Australia’s financial industry is getting away with murder. Forcing people to put money into superan [Read More...]

So where does the trade-off trade off? How low can interest rates go before Glen Stevens’ hair catch [Read More...]

Investing part of your portfolio overseas is a vital part of proper asset allocation. It’s a corner [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery