How much is a picture worth?
If it involves a celebrity, the figure could be in the tens, or even hundreds of thousands of dollars. Then there’s the old saying that puts the price at a thousand words.
But I believe pictures are much more valuable…
You see, I owe my career to pictures. I wouldn’t be writing to you today otherwise. It’s fair to say that much of my success is due to images…and lots of them.
Do you know the type of pictures I mean?
The answer is: charts. Just give me a graph, and I’ll start scanning for patterns.
I’m going to show you a chart in a moment. You won’t find this anywhere else. It’s 100% unique to Quant Trader. I think you’ll find it fascinating.
But first, let me tell you how I got my start…
Where it all began
My introduction to charts was in late 1991. And it was largely by chance.
You see, I had a part-time job in the dealing room at Bankers Trust. I would go in every day after uni to do admin tasks. It was an ideal springboard to a graduate position.
Things went well. By the end of the year I had two potential full-time offers. One was on the floor of the Sydney Futures Exchange, the other was in the charting department.
My first thoughts were of the futures floor. It was full of noise and activity. This made charts seem a bit dull. At 21 years of age, I didn’t know any better.
But fate had the casting vote…
The head of charting was first to offer me a position. I wasn’t about to tell him I’d think about it. I took the job on the spot.
My new boss — Scotty — had the respect of all the top traders. They’d often stop by our office to discuss the markets. It was a learning experience like no other.
Scotty taught me to see the market in phases — up, down, and sideways. He said understanding the cycle was key. This is what makes successful trading possible.
My year with Scotty was a gift. It put my career on a path I couldn’t imagine. Many of the lessons from that time sit within Quant Trader’s algorithms.
Learning the rhythm
This brings me to today’s update…
I still look through the charts daily. This gives me valuable clues about the market’s next move. I also gain some fascinating insights that others miss.
I’m going to show you an image in a moment. I’ve put it together myself. This will help you understand the rhythmic nature of the market, and the effect this can have on profitability.
But first, have a look at this…
Now, you may have seen this before. It’s my proprietary indicator — the ‘Quant 300’.
Here’s how it works…
The indicator calculates the number of top 300 companies in a rising trend. The stocks change over time, but the number remains fixed at 300.
A stock enters an up-phase when its shares:
- Hit a 40-day high; and
- Are trading above their 100-day moving average (MA)
The trend stays bullish while the shares are above the MA.
If you don’t know, a MA is simply the average share price over a set period (in this case 100 days). A rising MA is typically a bullish sign.
The indicator mostly ranges between 25 and 225: a low number indicates stocks are generally weak, while high numbers occur when the market has been rising.
I use this indicator to help identfy market bottoms. Major lows tend to occure when the indicator trades below 50, and then rebounds.
You’ll see the indicator is currently edging higher. But it’s well below previous peaks. This is typically a positive environment for stocks. You may be noticing this in your own portfolio.
OK, it’s time to look at the image I told you about earlier.
Check this out…
Let me explain what’s happening…
The image aligns the Quant 300 with Quant Trader’s hypothetical gains. It assumes $1,000 on every signal 1 (buys only). There’s also no company cap, and it doesn’t account for costs or dividends.
Now, I want you to focus on the indicator first…
Notice how it rises and falls in an almost rhythmic fashion. The number of bullish stocks increases to above 150, then falls to below 50. This cycle repeats over and over.
You’ll see several shaded areas on the chart. They cover the periods when the indicator peaks, to when it bottoms. This is when the number of bullish stocks are declining.
Now, follow those shaded areas up to the performance chart. Pay close attention to what happens during those periods. You’ll see these coincide with a lull in performance.
Some people get upset when Quant Trader’s stocks aren’t rising. I typically get these complaints during the down phase of the cycle. This is when stocks are generally falling or flat.
But here’s the thing: The market is like many living organisms — it inhales and exhales. You can’t have one without the other. Down-periods will always be part of the picture.
The best time to make money is during the upswings. This is when an increasing number of stocks are breaking higher. There are also better prospects for strong trends to develop.
Understanding this cycle can give you an edge. It can help you stick to your system when others give up. This is one of the most critical factors to success.
Study the charts in this update carefully. They give you an insight into the market’s rhythm. I believe these could be some of the most valuable pictures you ever see.
Until next time,
Editor, Quant Trader
Editor’s note: Are you struggling to consistently make good profits? If so, you should check out Jason McIntosh’s Quant Trader advisory service. It’s a fully algorithmic trading system for ASX stocks. Quant Trader scans practically every company. I can just about guarantee you’ve never heard of many of these unique ideas.
If you’re not familiar with Jason, he was a trader at one of the world’s biggest investment banks for nearly a decade. He’s seen dozens of market cycles. This experience is hard coded into Quant Trader’s algorithms. And the results speak for themselves.
So, if you’re not sure when to buy or sell…I strongly suggest you consider Quant Trader now.
Try it. See if it makes sense to you. It could change the way you trade forever.
All graphics above produced by Quant Trader unless otherwise noted.