A Trader s Opportunity of a Generation How legacy fortunes will be made starting right now in the upcoming market recovery! By Norman Hallett, 28-year Veteran Trader and Founder, The Disciplined Trader Intensive Program
The following observation applies to traders of ALL markets... Stocks, FOREX, commodities, options, and bond traders Nothing replaces experience in trading. Over the course of experience, you make all your mistakes, and hopefully learn from them without repeating them too many times. Over the years, you learn not to take the highs so elatedly and the lows so devastatingly... You have dramatic wins that have you yelping, Why haven t I done this all my life! and dramatic losses, having you mutter, This whole trading thing...is it really for me? Over the years, you learn not to take the highs so elatedly and the lows so devastatingly but more than that, you learn that you need a trading plan that avoids, the highs and lows and gives you results you can count on. Over the next several pages, I m going to give you 3 observations to ponder all of which I hope will give you a sense of the truly advantageous place you are, RIGHT NOW, in your trading and how to profit from it. Observation One... Be aware of your general trading surroundings and employ your trading resources to take advantage of where you are. You are in a safer trading environment if you go with the flow. As traders, we learn to look at longer time-frame charts for the underlying current of the market and then take action using shorter time-frame charts and make our moves with the flow.
I m mostly a position trader and I m always consulting the monthly charts and weekly charts to measure flow and then use the daily formations to act. A day trader may take the 15-minute chart as the flow gauge, then take action on the 5-minute chart formation. Now, pull back way back. Take a big, macro view of your surroundings. We are in a historic place in time. We ve just experienced one of the biggest stock market declines in history. To the experienced trader, this is setting up a MACRO-opportunity. To the experienced trader, this is setting up a MACROopportunity. But HOW do you take advantage? When the technicals have confirmed that the move down is over and the recovery is beginning, those who go with THAT flow, will make dream money, some enough to take care of their families for generations. I call this legacy fortunes. That s the kind of flow we are talking about in a recovery of this size. In a moment I m going to scan the history of each market recovery after a major drop, but suffice it to say, those who went with the flow, in each case of these historic cases, were WELL rewarded. Those who fought the flow suffered. The new macro-flow, the macro-flow of our generation, is about to be upon us if it isn t already. Will YOU be ready?
WARNING: You re going to need to be disciplined. OK, you ve seen Trading Observation #1 to refresh Be aware of the general trading surroundings and employ your trading resources to take advantage of where you are. We went through the importance of knowing the macro trading environment and pointed out that (in case you didn t know), our current trading environment is one of the best in a century, with regard to the opportunity for huge gains. Now you re ready for OBSERVATION TWO History repeats itself. There is little, if anything, new in trading action that we haven t seen before. The trader who s long term goal is fortune building looks for a major moment in time (in the present) and sees how the market acted in a similar time in history and uses that history as a macro-guide. With this in mind, I did some homework. One of its uses is to look back and try to find a market situation with the same DNA as the current market conditions. My form of doing homework in this case was consulting with a friend and well-known W.D. Gann Analysis expert, James Flanagan, about the situation. For those who don t know, Gann Analysis is all about studying the history of technical market movement. One of its uses is to look back and try to find a market situation with the same DNA as the current market conditions.
Here are a few things I found with respect to our current stock market situation: ONE: There are 5 market environments in the last 120 years that are exhibiting similar DNA to the our current market conditions 1908, 1932, 1974, 1987, and 2002. 1974 is the closest DNA, like a brother market (and I don t mean Oh, brother! ). The others are half-brothers or first cousins, but they re in our family. Of the 131 first legs up in a bull market in history, the above 5 markets are the 5 greatest first legs in history when you measure velocity. As of this writing, our current market is up about 38% in 2 months. Only the 1934 advance had a higher velocity. Looking at it another way, our current market reflects a.60% per day advance. The 1974 market is the closest with a.59% per day advance. Note: I m purposely not including any charts in this report for several reason, not the least of which is that you should do your own homework on this (doing your own homework is another observation for another report). TWO: The Greater The Bear, The Greater The Bull If you care to look back the at the above market time-frames, you ll see that they all reflect hugely oversold markets that resulted in violent rallies. The lingering question is Are we now experiencing the first leg up in a bull market, or a big rally in an even bigger bear market to come?
Only time will tell... although in doing further DNA analysis, it s becoming more and more likely that we ARE experiencing the first leg of a bull market. I can t go through those supportive figures here, but we are in, in MY opinion, the 80 percentile range that we are experiencing the first leg up. I say this not to have you jump prematurely, but only to say you need to PREPARED now. You want to wait for confirmation and that, of course, will take patience. THREE: If we truly are in the first leg of a bull market, then compared to the other markets of similar DNA, we are within days, weeks, or a month or two of the top of this rally, time-wise and distance-wise. In looking further at history (at the markets with our current DNA), we can expect, with high probability, that when this market corrects from the first leg up, it will be a DEEP correction. History says it will not break to new lows, but know that the average percentage correction of the 5 years with like-dna was $62%. (interestingly enough a Fibonacci number!) FOUR: According to history, the up move after the correction is where our big money will be made. the first high probability, fortune-building plan, may be to start by WATCHING. Again, paying attention to the like-dna markets of the past, the advance AFTER the correction from the first leg will not only big, it will be VERY big, and very predictable (of course, if we re right about the DNA match). So, the first high probability, fortune-building plan, may be to start by WATCHING.
Watch this first up-leg high be made, Watch the correction of the first leg up. When the correction gets to 32% (first Fibonacci retracement number) keep your eyes peeled for a solid turnaround signal indicating that the market is finished correcting. It likely won t happen there, based on our like-dna analysis, so keep your stops tight if you start to move in at that level (which I d do slowly). Watch for the correction to complete between the 50% and 70% level, as that s what the like-dna markets would be suggesting. Same thing there tight stops. You see, at these low levels, you can be wrong a few times getting in and make up for it in a big way when the up-move after the first-leg correction is upon us and in gear. If new lows are made and the first-leg up move was really just a bear trap all bets are off. So, caution all the way in this process, but know that we are WITH the probabilities and that s all a trader can ask. KNOWING ALL THIS, MOST TRADERS WILL STILL FAIL All the homework and great analysis does no good in fact does harm if you are not ice-in-the-veins disciplined in following your trading plan.
OK quick review Trading Observation #1 Be aware of the general trading surroundings and employ your trading resources to take advantage of where you are. We went through the importance of knowing the macro trading environment and pointed out that our current trading environment is one of the best in a century, with regard to the opportunity for huge gains. Trading Observation #2 History repeats itself. There is little, if anything, new in trading action that we haven t seen before. We then proceeded to support the notion that upcoming opportunity for traders this year and next could be the best in decades by comparing today s market environment with the DNAs of the 1908, 1932, 1974, 1987, and 2002 markets. Now take a deep breath because I m about to challenge you. More specifically, I m about to challenge your HONESTY. It s time for OBSERVATION THREE Only a trader with a solid, tested trading plan and the total discipline to execute that plan, in all it s aspects, will be equipped to take advantage of market opportunities and be a consistently successful trader. All others will fail. Now stay with me here! QUESTION 1: How many times have you done some nice chart work and, based on your analysis, felt that market was going to take off only to hesitate, for whatever reason, to pull the trigger and the big trade slipped away? again!
9 money management and risk management (two separate things!) Likely Problem: You don t have a solid trading plan you could trust and feel confident enough in to make your move when you should have. Solution: Learn what a solid trading plan IS which includes a style of trader that fits you, a heavy dose of money management and risk management (two separate things!), and a tight entrance and exit strategy then build yourself one test it run it lightly expand upon success. QUESTION 2: Have you ever had a nice little winning streak, where you had 3 or 4 nice winners in a row, only to put on that final trade where you watch all your profits go down the tubes and more! leaving you slapping your head like an idiot? Problem: You re out of control when things go too well. Your overconfidence gets the better of you and you put on a trade that s not an A trade because you re on a roll, or worse, you load up positions so you can really take advantage of your streak. Solution: Train your mind (and I mean change your subconscious patterns, because your subconscious beliefs control your actions) to stick to the A trades and to honor your solid, tested trading plan. Treat your trading like a business, not a game. Maybe the above two scenarios are a little bit too much Tough Love for your taste. But unless you get honest and I mean BRUTALLY HONEST with yourself and where you are mentally and emotionally with your trading and equally as honest with the tightness and quality of your trading plan you will NOT BE READY to take advantage of the opportunities that will soon be upon us in the markets.
10 Know This: The volatility that is likely to accompany the upcoming historic recovery move, will shake out those without a tight trading plan and solid discipline. THE GOOD NEWS... Like most traders, I struggled in my first few years of trading in fact, my first 5 years. I was not willing to admit that the problem with my trading was not the market and that the problem was me and my lack of discipline. Then I did something that most traders are not willing to do I looked in the mirror. I even got to the point where I personified the market and felt that it was out to get me even aiming for me! Geez! Then I did something that most traders are not willing to do I looked in the mirror. I got honest with myself. I realized that by going around thinking that I had 5 years of trading experience and all I needed was more experience, I was fooling my self. I accepted the TRUTH I was a trader with 1 year of experience repeated 5 times! I wasn t changing. I wasn t improving. I was lying to myself! That realization changed EVERYTHING. Well, not the realization, but the ACTING on the realization.
11 So I implore you... We are in a time in history where the generations after us will look back on NOW and speak of it as a time investors made fortunes in one of the greatest market recoveries in history. Look you re here. You re living the moment as a trader. Live it to win! FIRST: Understand and appreciate moment in history that you are in. SECOND: Do your homework to further define how these historic opportunities are likely to lay out. THIRD: Develop and tight plan of action (if you don t know how, learn how) your Trading Plan for this opportunity. FOUR: Understand that if you are not TOTALLY disciplined right now, you CAN be in a matter of months, if trained properly. if you are not TOTALLY disciplined right now, you CAN be in a matter of months, if trained properly. YOU CAN DO THIS! Big opportunities require big commitments. And if I m right you may very well build the fortune you have been dreaming of. The timing is right. This is truly your chance. I hope you have found these observations helpful!
12 Norman Hallett is a veteran trader of 28 years and has appeared on national radio and TV on numerous occasions. He anchored his own radio show, Risky Business, from 1991-1996, interviewing some of the top authorities on trading. He currently is the CEO of Subconscious Training Corporation, where The Disciplined Trader Intensive Program is the leading mental and emotional discipline training for professional traders. Contact http://www.thedisciplinedtrader.com for upcoming training schedules.