Stocks & Commodities V. 28:12 (10-16, 69): Less Stress With The JM Internal Band by Koos van der Merwe

Less Stress With The JM Internal Band by Koos van der Merwe

Here’s a trading strategy that helps you sleep soundly and prepares you for the market the following morning.

Throughout my investing career, I have always believed in simplicity. I have studied Elliott wave theory and used it to give me an idea of which way the market is heading. I have used and still use WD Gann to get an idea of when a major or minor reversal will occur — timing the market. Knowing when the market will turn up or down is a major advantage to my investing strategy, since the first lesson of investing is Never go against the overall trend. To be a buyer in a collapsing market is playing with fire, and selling short in a rising market is just as bad, unless you have information that no one else has.

RUN WITH THE TREND

Knowing what stock to buy or sell short is definitely an advantage, especially when you have identified a market bottom. But you must ask yourself: Do you want to be a bottom picker? Do you want to look at a chart with a band, whether Bollinger, Donchian or, for that matter, any other band, and place a buy order at the bottom of the band as long as it coincides with your favorite indicator’s buy signal? Or if you like placing shorts, would you place a sell short signal if you thought that the share was overbought as it reached the upper band, with your favorite indicator suggesting a sell signal?

This has always worried me. Do you buy into a falling market and sell short into a rising market, or do you wait for the market to turn and go with the trend? The standard advice has always been “Run with the trend,” a favorite with analysts. The problem that regularly surfaces for a novice investor is, “When do you close a position?”