Not much has changed in the market since the late 1800s. In fact, looking through historical charts proves that the same chart patterns have repeated themselves time and time again. Fundamentally, leading model book stocks have showed stellar return on equity, earnings, and sales growth prior to their runs, both then and now. Furthermore, names and businesses of these stocks may have changed, but the fact that they are all new and innovating remains the same.

 

What has changed in modern trading is the introduction of the computer and the internet. The computer has enabled us to easily screen through a large database of stocks, receive up-to-the-minute charts, and get news the instant it hits the wire.

 

We as MarketSmiths have embraced the change and benefitted from the information that technology has made accessible. Now it is possible to instantly whittle down our stock universe with whatever criteria we desire, use algorithms to identify patterns, and set price alerts on those patterns.

 

Despite the many positive developments, there are some potential pitfalls to relying on technology when it comes to trading. It can be a double edged sword; we want to use our tools to our advantage, but at the same time not complicate the process. For example, staring at an intraday chart all day can cause us to be immensely emotional and overtrade. Watching the news too closely can be the root of preconceived—or misconceived—notions about a stock or the overall market.

 

Sometimes we must remember to go to basics. Our job is simple: determine the market direction, identify the leading companies in the leading industry groups, and purchase them as they emerge from sound base structures. It is absolutely critical to be “Johnny on the spot” when it comes to identifying proper entry points. Once the trade occurs, the best ways to stay in tune with these stocks is to consult WEEKLY charts and use the 10-week moving average as a guide.

 

Looking at intraday charts is insignificant. In fact, famous dancer turned investor Nicolas Darvas was able to enjoy huge amounts of success even as he received quotes days old on the road. Taking a step back can help block out the noise and keep our emotions in check. Having a plan and not overdoing indicators will keep us level headed. As Bruce Lee once said, “I fear not the man who has practiced 10,000 kicks once, but fear the man who has practiced one kick 10,000 times.”

 

Best Returns,

 

Andrew Rocco

The MarketSmith Team