USEFUL TIPS

There is a series of free trading lessons, which consists of 10 topics that traders, both beginners and experienced traders, should find them very useful.

The 10 Free Trading Lessons will cover the following topics:

(1) The importance of psychology in price movement.
(2) How to spot mega trends.
(3) Understanding of technical price objectives.
(4) How to picture price objectives.
(5) How to trade with moving averages.
(6) How to use point and figure trading techniques.
(7) How to use the RSI indicator.
(8) How to correctly use stochastics in your trading.
(9) How to use the ADX indicator to capture trends.
(10) How to capitalize on natural market cycles.

On top of the above, you will learn all about Fibonacci retracements, MACD, Bollinger Bands, and much more.

These 10 free trading lessons will be sent via email.

In order to get this, just fill out the form here. Then you should be able to get it started right away. Hope this info can be useful to you.

Friday, October 19, 2007

Book Review: When The Market Moves, Will You Be Ready?

I just finished reading a book: When the Market Moves, Will You Be Ready?, authored by Peter Navarro.
Peter Navarro is the author of "If It's Raining in Brazil, Buy Starbucks", one of the famous books on Sector Rotation.



I found this book to be very well written. It is clear, concise and easy to understand, even for beginners.
Basically, the book introduces a top-down, step-by-step approach of investing, from the basic of fundamental analysis, technical analysis to risk management, money management, trade management, and execution.

Here are the main points what the book is all about:

There are 4 stages of Macrowave investing:

Stage 1: To analyze the 4 dynamic factors that have impacts to the broad market trend:
a) Company earnings: Especially for the big companies. Must take note of their earnings calendar.
b) Macro-economic events, such as government reports on inflation, employment, productivity reports, trade deficit, etc.
c) Fed policy changes (monetary vs. fiscal policy).
d) Exogenous shocks, such as oil price spikes, wars, terrorism, company scandals, etc.

Stage 2: To understand and determine the 3 key cycles that shape the market and sector trend: Business cycle, Stock market cycle and Interest rate cycle

With regards to the stock market & business cycle, Navarro emphasized the importance of Sector Rotation:

It’s well-known that to be successful in investing, one should follow the broad market trend because about 3 out of 4 stocks will follow the broad market. However, that principle only is actually not enough.
At different points of market cycle, there are some sectors that outperform both the general market and the other sectors. Therefore, investors should regularly change sectors as the stock market moves through the patterns of sector rotation.

If you’re in the right sector at the right time, you can make a lot of money very fast.

Peter Lynch

The following are 3 golden rules of Macrowave investing:
1) Buy strong stocks in the strong sectors in an upward trending market.
2) Short weak stocks in the weak sectors in a downward trending market.
3) Stay out of the market and in cash when there is no definable trend

This part of the book explained further the stages of stock market cycle, which sectors that normally outperform the others during each stage of the cycle, and the logics why it is so. Some ways to track the market and sector trend are also discussed.

With regards to the interest rate cycle, the author explained the 4 stages of interest rate cycle, and how interest rates affect stock and bond market.

In addition, Navarro also explained the Yield Curve and how the shapes the curve could possibly signal the possibility of market expansion / boom, or recession.

Stage 3: To screen and pick the strong stocks in the strong sectors or weak stocks in the weak sectors, based on fundamental and technical analysis.
The author offered some ways to screen stocks with strong fundamental and discussed some basics of technical analysis.

Stage 4: To use solid risk management, money management, and trade management as well as the execution itself.

I personally like how the author explained about the basic of money management. Very clear and systematic with a few examples. I think it’s the best explanation on the basic of money management as compared to other books or articles that I ever read on the topic so far. However, he did not explore too much on various money management techniques.

The trade management covers the comparison between market vs. limit order and when to use it, setting trailing stop to prevent a profitable trade from turning into a losing trade, using buying stop order for breakout play, etc.

On the execution, the author discussed the advantages of using Level II quotes as compared to Level I.

You can also take look at the Table of Content as well as excerpt of the book from the link provided above.
I think, it’s really a book worth reading.

6 comments:

Tony Chai said...

Hi OTB :

Thanks for the book recommendation. It's important to take note of sector rotation to understand where the big money from institutions are flowing into, as stock prices would usually move when there's volume generated.

Have a great Q3 earnings trading week ahead. Big caps like Apple (AAPL), Bidu, Amazon (AMZN), UPS would be reporting.

Yours Truly,

Tony Chai
My Options Trading Blog

Simply Options Trader said...

Hi OTB,
What a coincidence! I'm reading this book at the moment too :)

OPTIONS TRADING BEGINNER said...

Thanks for the input, Tony!
Yes, the week ahead will be very interesting, as many big companies will be announcing their earnings.
Wish all of us have a good & profitable trading always. :)

OPTIONS TRADING BEGINNER said...

Hi SOT,

Wow! Yes, what a coincidence!
Happy reading. :)

Anonymous said...

Hi OTB,

The book recommended is it useful in any stocks market in the world? Or only applicable to US stocks.

OPTIONS TRADING BEGINNER said...

I believe the concepts / theories sbould be the same & applicable in any markets.
But the examples provided in this book is for US market.