People Too Often Invest When They Should Trade and Trade When They Should Invest —Mike Swanson (03/26/2017) The graphic above is something I have put in these PDF updates from time to time to show the psychological shifts that people ex- perience through the various market cycles. You can look at the smaller stage analysis graphic and line them up together. However, there is another probably more important shift that takes place for market players during these cycles that no one has really talked about and that is what people actually do to try to make money in these various stages. I’ve been doing this now for over 17 years and have seen bull and bear cycles play Contents Market Internals Continue to Fade in Slow Motion Market Drop...p.6. Gold Stocks Big Consoli- dation Zone...p.8. Gold Stocks to Move Soon...p.11. How to Place Stop Or- ders….p.12.
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How to Place Stop Or- - WallStreetWindow.comwallstreetwindow.com/reports/wswreport03262017.pdf · Then there was a boom in “binary op-tions,” which is practically a scam. What
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People Too Often Invest When They Should Trade and Trade When They Should Invest—Mike Swanson (03/26/2017)
The graphic above is something I have
put in these PDF updates from time to time to
show the psychological shifts that people ex-
perience through the various market cycles.
You can look at the smaller stage analysis
graphic and line them up together.
However, there is another probably more
important shift that takes place for market
players during these cycles that no one has
really talked about and that is what people
actually do to try to make money in these
various stages.
I’ve been doing this now for over 17
years and have seen bull and bear cycles play
Contents
Market Internals Continue to
Fade in Slow Motion Market
Drop...p.6.
Gold Stocks Big Consoli-
dation Zone...p.8.
Gold Stocks to Move
Soon...p.11.
How to Place Stop Or-
ders….p.12.
2
out for people and myself multiple times and in multiple markets. Not
just the US stock market, but gold in particular. I know what I have done
myself and seen what others have done. I have communicated with many peo-
ple in emails, message boards, and even real time chat rooms back in the
internet day trading days. I have seen a lot of marketing over the years
on the internet and seen shifts in fads.
After the 2008 crash a lot of people got out of the stock market in
2009 and then in 2010 and 2011. During those years following 2008 more
money was taken out of the market by small investors than put into it.
At the same time a mania developed in FOREX trading during those
years. In google search more people were looking up terms relating to
FOREX trading than trading stocks. Then there was a boom in “binary op-
tions,” which is practically a scam.
What happened was there was an element in the trading world that lost
money in the stock market in 2008 then went into FOREX and lost money
there and then went into binary options.
Back in 1999 everyone was investing in the stock market and buying
big cap internet stocks such as Oracle and Cisco as safe investments.
They’d try to trade the volatile internet stocks and try to hold these
blue chips as investments.
And of course those people lost money. I had setup a live real time
chat room in 2000 and was shorting stocks myself. But almost all of the
people in it had zero interest in doing that. When they sold the stocks
they bought most of them decided to try to become internet stock traders,
jumping in and out of them. I shut down the chat room, because no one
cared in it about shorting and I just didn’t want to sit there all day
long talking to people. I even got someone else to run it so I did not
have to do that. It was a waste of time.
Then in 2002 I got into trading gold mining stocks. I tried to short
the stock market in 2003 too and would get stopped out and stopped doing
that and then solely focused on trading gold stocks up until 2008. Then I
got into shorting the stock market again that summer.
The reason I am telling you this is that most people in the financial
markets focus on one idea to make money and one strategy. Then they keep
doing it until the big trend changes. Most fail to adapt to that fact and
lose money. They then get out of the market forever or move on to looking
for another strategy to try to make money with. For those that do that
they usually go from being investors who lost to traders.
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I really did not know anyone personally who went into FOREX trading
after 2008. But I got dozens of emails, perhaps hundreds, from people who
lost money in 2008 and then decided to become ETF traders, mainly in 2X
and 3X short ETF’s such as the banking ETF’s or in trading gold stock
ETF’s.
What happened was that most of these people were investors before the
2008 crash. They may have been investing and holding gold stocks or DOW
stocks or mutual funds. It didn’t matter what they were holding they
lost. And then they became traders.
In 2009 though the stock market bottomed and that was actually the
time to buy. I didn’t buy on the bottom. I only adjusted that summer.
So I’m not trying to tell you I’m perfect. I’m trying to tell you
that there is a cycle that the people dominating the action on online bro-
kers go through in which not only their beliefs about the market change,
but their actions change too.
People got into the stock market in the late 1990’s, because they saw
it go up for years and decided they wanted to be a part of the action.
They were told that Alan Greenspan would cut rates on any market drop and
so it was safe and they saw stocks fly.
And so they piled in during 1999 to invest. Many lost in the subse-
quent bear market to give up on the stock market forever. I know people
who owned Amazon and Corning that thought they could hold it in 1999 and
get rich who ended up selling later and never buying a share of stock ever
again.
But now at this moment in time the stock market has gone up for a
long-time. It’s been years since 2009. And when the DOW broke 20,000 the
stock market began to go up without pulling back and the risks seemed to
be gone forever. And so more money has piled into ETF’s in the past three
months than in any annual twelve month period in the history of ETF’S. At
the same time market trading volume is lower now than it was last year.
What is happening is that people now are buying ETF’s not with the
notion that they want to trade them, but to invest! People are once again
true believers in the stock market just as they were in 1999 and in 2007.
The people dominating the market action today are not traders, but
investors. They don’t think they need to think about risks and they find
any reason to believe that the stock market will just keep going up for
them, because that is what they want to believe.
4
And right now the financial media is catering to them, not because
market commentators are trying to trick people, but because they believe
too.
Back in November after Trump won I closed out my short positions and
went long and recommended going long ETF’s VIS, XLF, and IYT. I sold
around New Years and got back in and then sold probably for good a few
days before the March peak.
In November there was talk that Trump would create tax cuts and in-
frastructure programs to grow the economy. He looked like he could be a
good strong leader the first few days in office, but since then his poll
numbers have dropped. He has made statements that have hurt his credibil-
ity with the American power elite in DC and with much of the general pub-
lic. And this past week he suffered a defeat with his health care bill.
This puts to doubt his ability to create the type of programs it
seemed he was going to be able to do a few months ago - at least to the
extent that it seemed possible.
However, after yesterday’s defeat in the financial media all I saw
was talk that none of this mattered. The talking heads and writers either
said that Trump programs don’t matter and the stock market will go up or
that he will still do something later in the Fall or next year and people
will just look forward to that.
There is a story on Yahoo Finance this morning that sums up what peo-
ple are saying: Why Heatlcare bill failure won’t kill Trump rally: