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FORCASTING
MARKET
Every day I see in the financial section of newspapers how
to forecast what the market will do in 6 months, 12 months, several
years. “Ten stocks that will double in the next 6 months.”
Right! I have trouble trying to forecast what it will do tomorrow. Do not trust
any who claims he knows what the future will be for the market.
Of course, your broker will send you gobs of slick material
about various companies that predict they will double or triple in the next 12
months. Are you smart enough to pick those winners? I’m not and I am considered
a professional trader. And I am sure your broker isn’t either. He just wants to
make a commission and is probably promoting a stock his brokerage company wants
to push.
Every investor wants to know the future and will send money
to some “expert” who will send him news about a company that only (?) he knows.
And pigs can fly. One thing about the market. It is
almost impossible to keep a secret and everyone knows everything about other
companies. As soon as some “analyst” finds a cogent fact that can influence a
stock price he will share that “secret” with a few close friends. Within
minutes the “secret” is known by hundreds of thousands and is immediately
reflected in the price of the stock.
If you do get sucked into one of these money traps by some
smooth-talking salesman or newspaper verbiage I strongly suggest you
immediately plan your exit strategy. Without an exit plan you can easily lose a
large amount of your “investment”. This is not an investment; it is a gamble
and should be treated as such. The first thought of any professional trader is
‘if I am wrong how much am I willing to lose’? Maybe 2%, 5%,
certainly no more than 10%. Pros understand that small losses are OK,
but never take a big loss.
From 1982 to 2000 it seemed everyone was a financial genius.
How many of those folks kept those big winnings from 2000? Almost
none. Most lost 40% to 60% of their money. Brokers said, “Hang in there.
You are in for the long haul”. Unfortunately he did not tell you that Modern
Portfolio Theory is based on a 40 year time line.
Yes, but understand you don’t need to predict anything. Don’t forecast. What you can easily
learn is follow the major trend. You bought in 1982 and you sold out in 2000.
The trend can be found in many ways with the simplest being posted every day in
Investors Business Daily newspaper under the IBD Mutual Fund Index. When the
Index price is above the 200-day moving average you own equities and when it is
below you are in cash or bonds. Nothing complicated,
Don’t try to forecast the market. Let the market
trend tell you.
By Al Thomas
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Happy Investing & Trading… |