A lesson in how not to trade
It is extremely rare for a market analyst to admit his/her mistakes. But hats off to Questor in the Telegraph who comes clean on his spectacularly wrong recommendation to buy Indivior, the UK drug company that markets its opiod anti-addiction treatment in the US. The shares have crashed.
He issued a buy rating at £4 last year and also on the way down to the recent 30p low. Of course, we can all make genuine errors – market analysis and forecasting are probabilistic in nature. Nobody can possibly achieve 100% success in getting both the timing and the direction correct in every situation.
That is why I developed rules for limiting losses on the wrong ‘uns with my unique pair of money management rules (available to members of my VIP Traders Club). But Questor never uses stops. And I know why. It’s because an analyst that uses the fundamental data such as the investment ‘story’ and the copious company data becomes so convinced he/she has found the secret to wealth creation they confidently/arrogantly believe they don’t need stops!
Analysts such as myself that uses technical (chart) methods know only too well how a trade can go wrong. We know we are playing with fire if we do not use stops
There is an art to applying stop losses that the majority of analysts are unable to master, so they they let their readers sink or swim. It’s the old adage that advice is only worth what you pay for it. In this case it’s zero.
But my purpose in raising this example of the disastrous trading technique is not to just pour scorn over the approach, but to highlight his new advice. That is to dump the shares!
And that makes it a textbook example of how investors/traders obey the age-old rule of Buy High/Sell Low.
In fact, with that 90% loss (magnified multiple times when using leverage), it has become what I call a Reverse Ten-Bagger! Now if he had shorted at 400p and covered at 40p, that would have been a genuine Ten Bagger.
So using Questor as a contrary indicator, are the shares worth buying here? My guess is: positively. I realise the court battle looms with the US government (read Questor’s article for details), but they may not lose it – and the shares would then gap up by several hundreds of pips. Hmm.
For me, there is only one way to trade/invest – and that is to have a reliable method that you apply with firm discipline. Buying into a ‘story’ is extremely tempting, but resists it you must. That is because by the time you read the story especially in the MSM, the market will have moved already and you will very likely be near a reversal.
That is why I developed my Tramline Trading methods to get you in to trends in their early stages – well before they reach the headlines. Want a recent example? Here is our recent campaigns in Gold.
Gold (and silver) have been extremely tricky to trade since at least June 2013. Here is the weekly showing the famous $1920 high in 2011
The decline off the ATH to the 2015 low at $1050 I identified as a five down which meant that I expected a three up in a counter-trend a-b-c pattern. I believed I had the a wave by July 2016 but then, the waves became highly over-lapping and it became difficult to find the correct Elliott wave labels.
But find them I did and I had great fun picking great swing trades both long and short in this period. Members took major profits in this period. But by April last year, I knew I had a wedge pattern unfolding – the trickiest of them all. Of course, you can only know you are in a wedge near its end and traders expecting solid one-way trends were mightily whipsawed. Luckily, we avoided that fate.
Here is the recent action with my trades marked
.In November, I started a campaign to take advantage of the large $100 – $150 bull run I saw coming. When it had reached a major target I took profits of over $100 above the $1300 level. Not only that, but I detected a sell signal as it came off the high in March and started a decline in the final E wave.
And when that wave turns, I will be advising long positions again. If you wish to have my upside targets and follow my campaign, take a Free Trial to my VIP Traders Club here.
Which way the euro?
Many traders have been bearish the euro for a long time, especially if they cling to the incorrect narrative that the value of a currency depends largely on the state of the economy and interest rates. The latter have been below zero in the EZ for many months. And the EZ economy has been none too perky, as well. Obviously, the euro should be weak – at least weaker than the dollar where interest rates are well above 2% and GDP is growing faster.
So why has the euro been so strong of late? The fundamentalist can’t explain it, can they?
Here is the very long term weekly chart
From 2004, all of the major lows lie on the lower blue straight line. Isn’t that remarkable? How does the market ‘know’ when to turn back up after hitting that line? Even twelve years after the first? Note that I did not manufacture that line (or the equally stunning upper line) – it was the market that put in those highly accurate touch points.
Remember, markets have memories. Sometimes long ones.
So how does a trader go about figuring out how to make money from this mass of waves? Obviously, the first step is to decide what time frame you wish to work in. I must say that a buy/sell-and-hold trader would be wiped out pretty quickly as he/she would be taken out on the first decent set-back. Ouch!
That is why I am a swing trader who wishes to capture the smaller waves and happy to take 5 – 10 big points in a swing trade lasting up to about 8 weeks – and then look to reverse positions to catch the opposite wave.
Here is latest action
From the March high at the 1.1450 area, the euro started an impulsive decline to the wave 1 low and then staged a normal counter-trend bounce in wave 2 and is now hard down in wave 3.
We have established short positions and looking for a decent move lower.
If you wish to follow this trade, get your Free Trial to my VIP Traders Club here.