Since Wednesday was PI day (3.14), I thought I might update my PI trade article, says Dave Landry, f...
The Grass Is Not Greener on the Other Side
09/21/2015 6:00 am EST
For the benefit of the newbie trader still educating himself, Frank Kollar, of Fibtimer.com, warns against the dangers of services with empty promises and outrageous claims. Instead, he discusses the natural occurrence of experiencing a loss but that the trick is in keeping the loss small.
As market timers who trade trends, we are always on the lookout for a new indicator or strategy that might give us a better edge and improve results. Education and research never end.
Many hours are spent testing every conceivable timing method. We study suggestions submitted by subscribers (always appreciated), ideas garnered from analysts seen on TV, books offering trading strategies, and sometimes spend hours just trying to improve current strategies.
You name it and we have read it, studied it, and spent many hours researching it.
Changing Methodologies to Meet Current Market Conditions
A good friend emailed the following, "A trader puts himself a great risk of failure trying to guess what the markets are going to do and changing methodologies to meet current market conditions."
How true. Yet so many investors do just that.
They will follow a timing strategy, but when the strategy makes a move they are not comfortable with—or the strategy takes a loss—they either hold back on that buy or sell signal, or search for another market timing service that agrees with how they feel at the moment.
They search for someone who will promise huge gains. Who will say they have achieved unrealistic profits over previous years. Who will promise them the world (just send your hard earned dollars).
We emphasize promise because so many services will do just that to entice you to subscribe.
"If achieving profits in the stock market were no more difficult than going shopping at your local supermarket, everyone would be a billionaire."
They are out there. We have seen so many Web sites offering guaranteed profits of 50%, 75%, 100% (or more) a year, we have stopped looking at them.
Some actual statements copied from market timing Web sites, "up over 1000%," "gains averaging from 61% to 263% annually," "Up 1500% in 4 Years," "annual returns above 100% with only few trades a month," "up over 900%," "97% Winning Trades."
We personally watched a new market timing service—who's owner asked us for advice (and who's service will not be named here)—post years of incredible gains, all achieved by back-testing. Gains averaging 60% to 80% a year every year.
They started their new service and by the year's end had achieved a loss. Real time trading is completely different than back-testing. Anyone can back-test and achieve wonderful results, but real-time pits you against the real world.
Every time we are told of a new service that has achieved spectacular results, we check how long they have been in business. Usually it is less than a year. But they are posting trades going back many, many years. Is this not a bit suspicious?
Getting back to that new Web site, at the start of the new year, those losses disappeared.
I looked. They are nowhere to be found. All I could find were beautiful charts showing how much you would have made, had you followed their strategy for the last ten years.
It is so easy to make your results look better than they are.
Please do not fall for such scams.
NEXT PAGE: When Is the Grass More Likely to Be Greener?|pagebreak|
Making money in the stock market is not easy. It takes hard work and patience. Anyone who says they have the key to easy money is lying. We received an email recently from a service advertising 288 winning trades with only 3 losing ones. Sure...there are people still buying the Brooklyn Bridge too. At FibTimer we tell all our subscribers that losses are inevitable in trading. The trick is to keep them as small as possible.
We also post every trade and keep those trades posted on the Web site for years. Every strategy has a link to a "Trading History" page with complete trade history and details for that strategy.
If achieving profits in the stock market were no more difficult than going shopping at your local supermarket, everyone would be a billionaire.
FibTimer offers solid results by trading all trends, for subscribers who stay with our strategies and do not exit at the first small loss or inconvenient news event.
The Grass Is Usually Greener During Drawdowns
Typically, market timers experiencing a drawdown are most tempted to change methodologies. If the grass is always greener, it makes sense that it appears vivid green when your strategy is experiencing a loss.
But changing methodologies mid-trade is almost always a losing proposition.
Traders who change strategies during a drawdown are attempting to forecast what the market will do next. There is no way to do this consistently, so the odds are, the change is a mistake. All strategies have periods when the markets move against them. If traders think otherwise, they are headed for losses.
You can always find an indicator that worked perfectly over the prior weeks or months. It is easy to find an accurate forecaster after the fact. It is an entirely different matter being accurate in real time and then doing it consistently.
"They will never realize the profits that are attained by staying the course with a solidly performing timing strategy."
Emotions are the primary reason for changing a good strategy mid-trade. We have written so many commentaries about emotions, this may be repetitive to many of our subscribers, but it is extremely important.
Emotional decisions are almost always losing decisions.
Trends are where the money is made. They last longer than anyone expects and usually no one believes them when they start. They last months, or a year, or more. Take a look at a long-term chart of the markets. One that covers ten or more years. See any trends in there?
Don't Be Misled by False Promises
Because no one can accurately forecast the future, some trends will fail. But at FibTimer we exit those failed trends quickly.
As long as every trend is traded, trend followers will always be fully invested in every real trend. They will never miss a trend.
Those who stayed the course with Fibtimer during the 2008-2009 bear market realized solid gains. And over following years those gains have multiplied to become huge gains.
Trend trading is the sure path to consistent long-term profits. Strategies based on any of the many, many indicators are subject to periods of time when those indicators fail. Do not be misled by anyone who promises he or she has found the perfect indicator. It does not exist.
Use common sense and stay with the trends to ensure you are never left behind in any rally and are always protected during a bear market or prolonged decline (or profiting in a bearish position).
By Frank Kollar, Editor, Fibtimer.com
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