MarketCycle’s Method

Research done by MarketCycle Wealth Management suggests this startling fact:  Most of the techniques that traders and investors are using to trade and invest in the markets do not work on an on-going, long term basis.  At best, they are hit and miss.  This is why 94% of all individual and professional investors, when reporting to the Internal Revenue Service each year, reveal that they make zero profits (according to IRS.gov).  What follows below is a list of the most common techniques used in investing:

Technical Analysis & Fundamental Analysis

Technical analysis is the process of using current price and volume technical data to create charts that predict future market trends.  The problem is that some of the correlations in technical analysis are illusionary and others are chance, leading to errors.  The co-founder of a famous trend-following trading system, William Eckhardt, stated:  “Most things that look good on a chart, say 98%, don’t work.  The human mind was made to create patterns.  It will see patterns in random data and will see more on the chart than is truly there.”  And according to the brilliant Albert Einstein, “The theory shapes the observations.”

In the most common form of investing, fundamental economic analysis, much of the economic data is received too late to do much good… it only tells you what has ALREADY happened.  How can that help with determining the future worth of an asset?

“By the time a fundamental case presents itself, the move will already be over.”
– Ed Seykota, from the book: Market Wizards: Interviews with Top Traders, by Jack Schwager

“Fundamental economics are nice, but useless in trading.  True fundamentals are always unknown.”
– Jerry Parker, from the book: Trend Following: How Great Traders Make Millions in Up or Down Markets, by Michael Covel

“Wall street relies on stock analysts.  These are people who do research on companies and then, no matter what, even if the company has burned to the ground, enthusiastically recommend that investors buy the stock.”
– Dave Berry, comedian

 
 
 

Buy and hold ?

Just buying and stubbornly holding assets can lead to decreased gains with increased risk.

Jon Stewart:  “My mother is 75 and she bought into the idea that long term investing, buy and hold, is the way to go. And guess what?”
Jim Cramer (with head hung low):  “It didn’t work.”

– Interview on Comedy Central’s: The Daily Show With Jon Stewart, March 11, 2009

“One down 50% year can take decades to recover from, whereas a series of small up years will compound to great returns over time.”
– From the book: Invisible Hands: Hedge Funds off the Record, by Steven Drobny

 
 
 

Day trading ?

Day trading is an attempt to make profits within the time span of minutes to hours.  This works best in a strong bull market where most investors of all types are already making money.

“Fastest way to intensive care I know.  It’s insane.  The minute I hear the words ‘day trading’ I know that I’m staring at a loser.  It cannot be done.”
– Ralph Bloch, chief technical analyst at Raymond James and Associates

 
 
 

Counter-trend investing ?

This is where short term traders go against the primary trend… swimming upstream.

“Countertrend trading is very dangerous.”
– From the book: Invisible Hands: Hedge Funds off the Record, by Steven Drobny

 
 
 

Contrarian investing ?

There is where long term traders place bets that a major trend is about to end.  Many of the largest hedge funds went bust in 1998-1999 betting against the tech bubble.  This approach makes intellectual sense, but it is very dangerous.

“Markets can stay irrational longer than you can stay solvent.”
– John Maynard Keynes, lived in the 20th century and is still the world’s most famous economist

“I lost a lot of money shorting the NASDAQ (tech stocks) during the second half of 1999… I lost about a third of my capital that year.”
– Jim Rogers, (retired) global-macro trader and co-founder of the Quantum Fund

 
 
 

Value investing ?

Value investing is buying cheap stocks with the hope that they will eventually go up in price.  Value investing can be profitable, however one has to be careful because many cheap stocks are cheap for a reason.

“Big money does not come from cheap stocks.”
– Jesse Livermore, a late 19th and early 20th century stock trader that was so good that he was eventually banned from the trading shops of Boston and New York

 
 
 

Market-neutral investing ?

This method involves shorting strong stocks that one feels are “too high” while buying long those cheap stocks that seem “too low,” using very high amounts of leverage because the technique is often overcrowded and results in minimal profits.  The technique does poorly in a bull market but has lesser losses in a bear market, making for low but steady returns; thus the use of high leverage.  It is, frankly, an okay trading technique for those who cannot tell a bull market from a bear market or are afraid of normal market volatility.  One of the problems is this:  what if both of your trades, the long and the short, go the wrong direction… then you have two problems instead of one.

“It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.”
– William O’Neil, founder of Investor’s Business Daily

“Cheap leverage allows hedge funds to boost returns from strategies that are minimally profitable and should otherwise be abandoned.  Instead, their trades get ‘overcrowded,’ leading to crashes when the leverage leaves.”
– John Authers, chief investment editor, Financial Times

 
 
 

Intuitive trading ?

Markets are not “intuitive,” they are “counter-intuitive.”  Trading based on “feelings” is more common than one would think; it is usually 100% wrong.

“Decisions based on our natural instincts invariably turn out to be the wrong course of action.  Success based on an emotional response to market conditions is the result of chance, and chance does not help us to attain consistent results.”
– Martin Pring, from the book: Investment Psychology Explained

 
 
 

Global-macro investing ?

This is placing a few large investment bets based on guesses about what might happen in the big picture of the world’s economic and political scene… we feel that this technique works best when combined with “trend-following,” as is practiced by MarketCycle.

“Most of us are rubbish at seeing macro events coming, let alone timing them.”
– Dylan Grice, strategist at Société Generalé

“Macro funds tend to have a lot riding on a handful of bets, so getting a few calls wrong generally makes a big dent in returns.”
The Wall Street Journal, September 27, 2010

 
 
 

Dollar-cost averaging ?

This technique has a very large following.  They believe that buying stocks that are losing money, as they dip or even plummet, is somehow a good idea… throwing good money after bad.

“There has been a persistent ‘buy the dips’ mentality in the markets, which proved to be a disaster in 2008.”
– From the book: Invisible Hands: Hedge Funds off the Record, by Steven Drobny

 
 
 

Classic trend following !

Newton’s first two Laws of Motion state that when something is at rest (a dull sideways market) it will remain at rest until an outside force (such as the Fed altering interest rates) acts upon it to cause it to move… once in motion, it tends to stay in motion, in a trending straight line, until a strong opposing force causes it to stop its trend and then either become dull again, or to change direction, creating a brand new directional trend.  Jumping aboard and riding these strong directional price trends to their termination is what we consider to be the best and most profitable of all investing techniques.

“Markets go up and markets go down.”
– Ronald Reagan

“All profitable systems trade trends.”
– Ed Seykota, trend follower

“I analyzed which investors were the most successful and discovered trend following.”
– Salem Abraham, from the book: Trend Following: How Great Traders make Millions in Up or Down Markets, by Michael Covel

“Markets aren’t chaotic, just as the seasons follow a series of predictable trends, so does price action. Investments are like everything else in the world:  They move in trends, and trends tend to persist.”
– Jonathon Hoenig, hedge fund portfolio manager

We have developed a proprietary, advanced, hardy, robust and innovative form of long-term trend following.

Most Investment Advisors are suggesting “buy and hold-on” to their clients.  We are different in that we follow trends, which are long lasting one way directional moves in the markets.  We utilize global assets and seek to preserve our gains made from uptrends and to generate additional profits during downturns.

MarketCycle understands the markets and we understand the bull and the bear market and business cycles and how tops and bottoms are formed.  There is no one else using our unique and proprietaray methods of investing.

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MarketCycle Wealth Management | Stephen Aust
MarketCycle Wealth Management, LLC is a Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with a tax professional before implementing any investment strategy.