Thursday, February 12, 2009

Begin Market Awareness

OK. We are getting close to an overall trading plan. Based on previous posts, here is the general direction of my thinking: (For the background of these concepts, read all the post in this blog.)

We need a better rate of return than checking accounts, savings accounts, and CD's. Bonds might be suitable but we don't understand enough about them and their risks yet. The stock market grows at an average of about 8% per year when measured from its inception, so it has sufficient potential. It is suitable only if we carefully trade the better winners and quickly exit our trades to protect profits.

The Foolish Four trading paradigm can often beat the market's 8% rate of return. The Foolish people now recommend trading the new index funds for an even better rate of return. Three X leveraged funds offer much better rate of return than basic index funds and are beneficial in bullish and bearish markets.

From the first post in the blog we know that Price goes up and down. From another post, we know that Price is what we care about because it is the only thing that puts money in the bank. Also from that post, we know that there is an underlying intrinsic price that has been deeply violated by our current recession. Recessions last on average 18 months so this one should be in its final throes.


Now, all we have to do is look once each day at four investment vehicles for signs of being bullish. I can do this! If they take a bearish direction, (who knows, since politics are at least as important as stock fundamentals rite now) I can profitably trade that too.

So, here is the first instalment:
- FAS: essentially flat since Jan 20
- ERX: was in a bull rally but now testing lows
- TNA: choppy. going nowhere since Jan 23
- BGU: choppier. testing Jan low. falling with momentum

So there we have it! A simple long-term plan to trade on the daily chart to gain from the markets inevitable recovery. We expect to reap almost three dollars for every dollar of the market recovery. This is HUGE!

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