By: Chris Rowe — April 24, 2012
One very common misperception is thinking that markets are moving because of how individual investors are trading.
It’s simply not true. Studies show that 60% of trading volume is automated -- based on algorithms. These algorithms trade on many of the same indicators I teach in my course and write about here in The Tycoon Report, and many of these indicators are overlooked by almost every mainstream service.
Believe it or not -- and this is going to sound totally impossible to some -- the media is constantly drilling into your head a false picture, false assumptions, and pretty much lots of B.S.
If analysts or the media have nothing to say, or if they say: “I don’t know,” then they will cease to exist. So they just spit out whatever they can to stay in business.
You don’t want to know how I could know this for a fact. But ask any insider in the financial media business who truly knows, and they can say the same. It’s scary. I’m talking MAJOR networks where they create stories and where the talking head “analyst” has an earpiece with someone telling them what their opinion should be.
Sure, much of the time, they are correctly reporting on why markets are doing what they are doing in the short term, when it’s obvious, but they almost never get it right when it comes to the FUTURE, and that’s because the short-term movements they report on have virtually no predictive power in the stock market. Their hedge: There’s usually no way to prove that the reasons they give for market movements aren’t accurate.
The real predictive power, short, medium and long-term is in technical analysis. If markets are moving in a trend, then THAT’S what’s going on -- and nothing more. Big investors don’t decide to start buying or selling stocks and then, as soon as they do, call media outlets and show them their cards. The media often just attaches a reason for movements in the market and -- as scary as it seems -- convince the world that what they are saying is a fact.
It’s like astrology. One can read ...
“The New Moon in Sagittarius offers up new possibilities for adventure. This is a great day to plan a trip to a place you've always wanted to go.”
... and then look around and find several possibilities for adventure. The horoscope seems to be spot on.
I admit, this comparison may be a stretch, but after being an investment insider in many aspects of the business for 15 years, I can tell you it’s really not very far off. And the astrologist isn’t putting a major part of your life at risk. If anything, they make you more positive. The financial media does serious damage to your investment account -- no joke!
Markets can only move when people are acting on their sophisticated research. They don’t move on “stories” as much as they move on “action”.
Why do bear markets bottom out long before the economic recovery is “underway,” and the before media starts reporting reasons for the bounce?
Think about this: Even when I was a rookie money manager, I was able to literally move stocks 20%, 50% or 100% if they were small cap stocks that only traded 50,000 - 100,000 shares per day. This was with NO NEWS on the company. Just based on my own humble opinion that it was worth more.
In fact, anyone reading this article can use what they have in the market to actually move certain stocks up 30% or so, if those stocks trade light enough volume. I’m talking illiquid stocks.
This is because a) there aren’t many shares outstanding, and b) there isn’t much of a market (not many sellers of the stock you’re buying).
But when a few people can change directions of stocks like Exxon Mobil, Intel and Microsoft that have 5-8 billion shares outstanding and trade 20m to 200m shares per day, you know those people have the cash to get the true story. And when the market closes, you’ll hear the media creating reasons why it happened (they have 5 easy canned reasons that apply to any move -- just in case).
Listening to those reporting on what financial markets are doing can often do more harm than good. If everyone knows this already, then why do they bother to keep listening?
ANSWER: Because they don’t feel confident enough to formulate their own opinion on the market. But I’m telling you right now you DO have that ability. You can formulate your opinion based on what the power players with the market-moving money are telling you. They are speaking to you whether you know it or not, just as a crime scene speaks to a crime scene investigator, or the way a body speaks to a doctor or coroner. Big players leave clear footprints, and history repeats itself.
Price action tells the true story.
You can formulate your opinion by understanding technical analysis. These players are casting their votes with dollars every day. You just have to do two things:
1. Understand how to hear what they are telling you (simple education of technical analysis that anyone can grasp).
2. Actually bother to listen to what you’re hearing (which means fighting your own human emotion that causes the most seasoned technical analysis veterans to stray from their time tested indicators and systems). I will give you the best strategies on how to completely hedge yourself from human emotional errors in the exact way I was taught by people who actually move entire stock markets with their decisions. This part can’t be perfected right away, but you now have someone with Wall Street blood pumping through his veins to assist.