How You Can Learn to Trade Like the Pros Do
Editor's note: "Technical analysis focuses on now, fundamentals on what was"...
Ten Stock Trader editor Greg Diamond heard this quote soon after starting at a hedge fund years ago. And it sent him down a completely different path than he envisioned...
Before joining Stansberry Research in 2017, Greg worked at a $15 billion hedge fund and a $65 billion pension fund. He's an expert in looking at past market behavior to predict what's to come. And he has a long track record of identifying major turning points...
In fact, using his technical approach, Greg predicted the exact week the market would crash back in March – three months ahead of time.
This weekend's Masters Series is adapted from a Digest series that first appeared in April 2018. In today's essay, you'll learn more about the experience that changed Greg's career path... how he's sharing his knowledge and approach with Stansberry Research readers... and why technical analysis is much more than just trendlines and charts...
How You Can Learn to Trade Like the Pros Do
"I'll give you $1,000 if you burn that book right now."
I was 22. Sitting at my desk, I had been lost in my reading – studying for my Chartered Financial Analyst ("CFA") exam.
I had started at the hedge fund just a few weeks before. My boss had trained under a trading legend. It was a huge opportunity to work with him. I was excited, but aware of the pressure. I wanted to learn as much as I could as quickly as possible.
But I was startled when my boss walked up and told me to burn my books. What the heck was he talking about?
It turned out this would be the beginning of an obsession. This boss would lead me down an entirely different path than I had imagined. And I never did end up getting that CFA certification...
But I'm getting ahead of myself. Let me first tell you what my boss said next (I'm paraphrasing a bit)...
Look, if you want to understand risk, if you want to understand trading, if you want to understand portfolio management... you can't just focus on fundamentals. It's not that fundamentals don't matter. But to get really high returns and really exceptional trading results, you have to understand... how markets move and what markets move, and the psychology behind why markets do what they do.
The CFA exam and materials focus almost entirely on fundamental analysis. They go deep into the weeds of debt, profits, and management teams. And while all that is important... what my boss was trying to tell me was that he followed a different path.
You probably know there are two schools of thought when it comes to looking at the market. There's fundamental analysis and technical analysis... And he wanted me to focus on the technicals.
I'm not saying that fundamental analysis doesn't matter... It does. Great businesses with a history of making money and paying good dividends through both good times and bad times are vital for "buy and hold" strategies. But when it comes to trading and understanding why price behaves the way it does, technical analysis rules the roost.
Technical analysis focuses on price behavior of a stock or asset through various indicators and price patterns.
As my boss said... "Technical analysis focuses on now, fundamentals on what was."
That's what I want to share with you here this weekend. It's an entirely different way of looking at the markets. Fundamental analysis works for a lot of people, but it's not how I invest...
Today, I'm going to introduce you to trading the way the hedge funds do...
I spent more than a decade on Wall Street trading multimillion-dollar portfolios across multiple asset classes.
Gold, crude oil, foreign exchange (FX), stocks, futures, options, copper... I traded all of it.
Within weeks of joining the hedge fund, as I told you about earlier, my boss taught me the greatest lesson of my career.
Eventually, after years of intense studying, and a formal examination in front of the board of Chartered Market Technicians, I received my "CMT" designation.
Technical trading became my bread and butter.
But eventually, I got fed up with all the greed, backstabbing, and lying I saw on Wall Street. The environment was toxic...
Several colleagues' marriages failed, and political games between bosses and employees took precedent over leadership and teamwork.
All I cared about was the markets. I didn't want any part of the other nonsense.
I would much rather live a simpler life with my wife.
I also grew tired of not knowing who I worked for. Why was I trading millions of dollars a day for clients I never met? Why try so hard to help the rich get richer?
So I walked away.
Soon after, I met Porter Stansberry...
I was floored by his analysts' knowledge and expertise, and even more blown away by how much they helped the individual investor.
I'm originally from North Carolina, and many of my family members served in the military.
Integrity, honesty, hard work... those are the principles I grew up on. And that's what I found at Stansberry Research.
I've embraced the Stansberry way... And I plan to continue living that way. I'm going to work to make you as much money as I can.
I'm going to show you how to trade like the pros do...
In my Ten Stock Trader service, that means that we look at technical setups and trends in the market and find ways to trade them. Every week...
- I publish a weekly market outlook – sent directly to your e-mail – that outlines the best trading setups each week.
- I generate trade recommendations with instructions on when to enter and exit these trades.
- I share daily market updates, trade alerts and updates, and detailed analysis around my technical strategy through my live feed and on the Ten Stock Trader app.
This weekend, to help you learn more about my approach, you'll find some more details about technical analysis, the types of patterns I look for, and how I plan to set up this portfolio.
"Human nature never changes."
"History repeats itself."
These adages stick around because they're true.
They're even true in the markets. The ups and downs of the market are nothing more than the graphic representation of human behavior... expressed on a chart of buyers and sellers. And this market behavior tends to repeat.
That's how technical analysis works. We know what's happening because we've seen this all happen before. As legendary trader W.D. Gann once said...
The future is but a repetition of the past. There is nothing new... History repeats, and with charts and rules, we determine when and how it is going to repeat.
Here is a perfect example of a type of technical analysis called "intermarket analysis" that served as a warning of a storm brewing at the start of the financial crisis in 2007... well before the market crashed.
Intermarket analysis is based on correlations between asset classes... And when one of these asset classes turns down, it may be a warning sign for other asset classes (stocks, in this case). We know this because these chart patterns have shown up before... and other assets have fallen. Take a look...
The S&P 500 Index (blue line) and U.S. 30-year interest rates (black line) traded in tandem at the end of 2019. The "trade war" with China was calming down, and both asset classes were moving in the same direction. All was well.
But then, as you can see, the correlation broke down early this year.
Now, look at the red lines... See how stocks made new highs, while interest rates failed to? That was a warning that something was wrong.
Of course, most of the fundamental analysts pointed to strong earnings and solid "fundamentals." I could hear my boss's words in my head... The only thing that mattered was what prices were signaling.
This is an extreme example, given the crash that followed. But it was a warning... and one that worked well.
This is the essence of technical analysis – understanding the behavior of markets and history. This concept is lost on many investors who simply write it off. They simply don't understand and aren't willing to put in the time and effort that's necessary.
Technical analysis is much more than trendlines and charts. It is understanding the past to profit in the future.
To that point, in tomorrow's essay, I'll discuss the only thing that matters when it comes to investing... and share some important technical indicators and terms.
Regards,
Greg Diamond
Editor's note: Greg's approach to the markets works best in extreme moments like what we're seeing today. Recently, he has used it to identify big turning points in gold... semiconductors... bonds... the S&P 500... and much more.
By following Greg's recommendations this year, you could've doubled your money nine times... without buying a single stock. And now, he's making another bold prediction...
On December 23, Greg expects a huge move that could wipe out an entire year's worth of gains for those who aren't paying attention. In short, he believes the cause of the March crash was much bigger than a virus... and the implications could last through 2023.
But you don't need to be a victim... Greg just put together an urgent presentation to explain exactly what you can do to prepare before it's too late. Watch the presentation right here.