Keeping It Simple, Why Short Traders Are Losing Money This Week

By: Chris Vermeulen | Mon, Aug 18, 2014
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One thing I have talked about several times which cannot be understated is that is the tendency for investors to believe that complex trading ideas and automated trading systems are better than simple, logical ones.

At first thought this notion is completely understandable. After all, if an idea is fairly simple, how could it possibly be "a secret" and investors not using it yet?

Successful trading and investing is not about how good you look or how impressive you sound in videos. It's about what, when and how you do it. It does not matter if you are placing the trades yourself or using an automated trading system. What, when and how the investment is traded is all that matters.

It's known that highly intelligent people struggle with the markets because they believe intelligence will improve their trading results. The reality is, they do not thing simple trade setups and strategies that look like they will make easy money, will work. Why? Because they think that the market is complex and thus trades should not be simple to spot and time, therefore the simple ideas should not work.

In all fairness "simple trading" is not really that simple. Successful trading requires the right kind of simplicity, in the right amount at just the right time. This is what creates the highly profitable investors and automated trading systems.


Why The Short Traders Are Losing Money This Week

They are fighting a bull market which is still pointing to higher prices.

Take a look at the chart below of the SP500 futures index. You will notice the bars are color coded; this is done by my automated trading system which identifies the market trend which trades should be trading in line with.

The stock market remains in a full blown bull market. Investors should remain long for time being. On the other hand active investors should be trading with the current market trend which is shown on the chart.

Market corrections within a bull market are sharp and short lived. As an active investor you will be lucky to catch one or two short trades during these pullbacks before the uptrend is retaken.

It is important to know that eventually one of these bull market corrections will be the straw that breaks the camel's back, and kick starts a new bear market. This is why I always move to cash and look to short each of these corrections. We just never know WHEN a full blown bear market will start. If you are holding your positions through these corrections and think you're a great investor, just wait until the market does actually breakdown and most of your gains are gone before you realize it. I will admit, its very easy to get lazy with investments after years of rising prices. Laziness and a lack of a trading strategy for a falling market is what causes 99% of investors to lose their money.

I believe in trading defensively. Sure it's more work, takes time to follow, and there are extra trading commission fees, but it is a small price to pay to keep the majority of your gains.

Bull Market Corrections are Short Lived
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SP500 Monthly Big Picture Analysis

Here is the big picture and trend of the SP500 index. Simple fact is, eventually things are going to get really ugly. By stepping back and looking at this chart, it's clear the market must still fall substantially in value to break below its critical support trend line and before we can confirm a true bear market is in place.

Do you want to see your nest egg drop 20-30% before you decide to exit? Or do you want to profit from this initial correction when it does happen, and make even more money when the stock market drops for a year or two after taking your account to new all-time highs.

$SPX S&P 500 Large Cap Index INDX: Bear Market - The Baby Boomer's Nightmare
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Keep It Simple Conclusion

The good news is that if you keep things simple by following the intermediate trend, like the color coded chart above, you can keep making money as the market rises to ridiculous new highs, and avoid market corrections, and possibly even profit from them.

 


In my next article I will show you a simple trading strategy that I have used for many years to time stock market bottoms and tops for swing trading. Best part is that the data I use is available online for free.

One final note, there are automated trading systems that does all this for you. I also use it and have it trade my own investment capital for me. You can learn more about it and join my mailing list here: http://www.algotrades.net/automated-trading-system-2

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
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