Your First Investment Task for 2016

Talk about a rough start to 2016.

Over in China, the Shanghai Composite Index fell 6.9% on Monday. The action in China seemed to rattle the US markets. Investors are already touchy about the fact that the Dow finished down for the year for the first time since 2008.

Is all this foreboding worse?

Here’s what we do know: two trading days into the year and you already have something to worry about!

Get used to it. The market is always worried about something. Your job is to recognise it, and act anyway.

Today’s Money Morning will show you how.

The mainstream loves to spook you out of the market

Years in the markets have taught me one thing: put aside the macro outlook that the mainstream press waffles on about.

Here’s what most traders know instinctively after a few years traversing the rugged and rough terrain of the stock market. Opportunities present in the markets every day. They can be both on the long and short side.

But even if you only trade the long side, this is still true.

You may not be aware of this. That’s because mainstream analysts rarely comment on these opportunities.

They cover the names you know; the banks, BHP, Telstra.

This is not where the opportunities are.

And yes, there ARE opportunities despite the slowdown in China, the US Fed normalising rates or whatever is captures the mainstream press in the moment.

So make 2016 the year you take advantage of some of these opportunities. That is a very realisable goal.

Here’s how to start on that…

Are you watching for opportunities?

The first thing to do is build up a watch list of stocks you’re interested in. The easiest way to do that is to look at stocks pushing into 52 week highs or sectors of the market in an uptrend.

Once you do this you’ll discover a secret the general public are unaware of. Stock prices move before the mainstream press start covering the relevant story.

You will find that the market generally knows before the news to come. That’s a very tradable insight once you come to understand it.

Let me give you an example.

Take the company Service Stream [ASX: SSM].

While some traders hung up the hats into Christmas to enjoy glazed hams and summer beach days, I had this stock on my watchlist.

Here’s why.

It provides network services and is reasonably positioned to profit from the ongoing rollout of the NBN across Australia.

I noticed the share price wouldn’t be sold down and watched it break out of a range it had been in for two months.

Daily Chart Service Stream Ltd

Source:STEXClick to enlarge

News came through on 21 December about a contract the company has been awarded. Note how it has run up higher after the news announcement. That’s bullish.

Possibly further good news to come for this company. Let’s wait and see.

Of course, they don’t all run.

That’s why you need to know this most important thing. Because when you do, it will get you through the hard times that come along.

You have to go through a learning process

Many people come to the market expecting easy money. If it was all that easy, who would need to go to work in the morning?

Trading markets is hard work. For many it will be the hardest work they will ever do. Markets require time, practice and study.

If you want to get good at anything in life, then you need to practice every day. Why should the market be any different?

There is only one way to do things, and that is to do them. You will find that you make mistakes along the way. Only they are not mistakes, they are learning experiences and we all have them. Each learning experience will refine your technique and give you new insights in to the market. Practice is the key.

And you can practice in markets, if you keep tight stops. That allows you to keep your capital while you learn.

If you’d like more insights on trading the markets, go here.


Terence Duffy,

Lead Researcher, Cycles, Trends & Forecasts

From the Port Phillip Publishing Library

Special Report: You probably already sense that stocks might be in for another bumpy ride in 2016. But that doesn’t have to mean that you have to miss out on making great money. Because, according to small-cap analyst Sam Volkering, certain stocks could rise hundreds of percent no matter what happens in the next 12 months. In this special report, Sam reveals the simple principle behind that success. And you’ll also discover his top three small-cap picks for 2016, which could bring you gains as high as 338% over the next 12 months. (more)

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia