Project Freedom (4): Understanding of the States of Market Trend and Rotational Trading Concept

Attached are a few charts aim to demonstrate the importance of understanding the State of Market Trend and the Rotational Trading Concept which could help one to handle his personal finance.

POINT I: Understanding of the States of Market Trend.

Fig 1.  ^STI Daily Chart (2 years)  (Click on the chart to Zoom in)

The above chart show a daily chart for ^STI from Apr 2010 to Apr 2012.  This particular period is selected to show that money put in the market (so call buy and hold investment) can ended up with zero percent return over years.
In the price chart, there are algorithms built-in to draw the trendlines (also act as dynamic support and resistance lines).  When the bar change color, it signal a possibility of change in trend. 
In the lowest pane, it is an indicator desgined specifically to measure the Vibrational Energy of the stock:
If the Energy is High and moving upwards, it signals a state of UPTREND MARKET.
If the Energy is High and moving downwards, it signals a state of DOWNTREND MARKET.
If the Energy is Low, it signal a state of SIDE WAY MARKET.
It also display the number of bars in the respective state of trend and its percentage over the period.  For example:

Over the two years period, when breakdown into percentage...
The UPTREND is      : 31.39%;
The DOWNTEND is : 18.05%;
The SIDE WAY is     : 50.56%.

Fig.2 ^STI Daily Chart (1997 Jan - 2012 Apr)
So, one may think that two years of data could be too short to make the point.  How about longer period of data? 

So, with the longer term of data, it show that the result is similar with the previous finding. And, lead to some basic understanding of the market trends structure...

Conclusions from Point I:
1) The Speed of UPTREND is SLOWER and DOWNTREND is FASTER.
2) BUY AND HOLD strategy is NOT WORKING in todays market.
3) One must be able to ride on the Trend in order to make profits from the market.

POINT II: Understanding of the Sector Rotational Trading Concept.

As the previous point illustrate that money put in one market/Stock/Fund are really productive about 30% of the time in UPTREND, 20% in DOWNTREND, and wasting time 50% of the time.
So, if one were to only LONG the market, does that mean 70% of the time he must wait???
Not true if he understand the concept of Sector Rational Trading.


Fig 3. State of Trends in S&P500(SPY)
and its 9 sectors(XLB,XLE,XLF,XLI,XLK,XLP,XLV,XLU,XLY) (Apr 2010 to Apr 2012)









See... 
The money in the market are of fix amount.  When the stock market is moving up strongly, people would pull money out of bond market and put into stocks and cause bond market to fall, and vice versa.  Similarly, the professionals would not put their funds in equal distribution into all sectors, they would pull the money out from the weak sectors to put them into the strong sectors.  And the sectors Relative Strength would keep changing over time.  In the picture, you can see the TREND is Out Of Phase from one another.

With the same token, one can then zoom into the individual stocks, in the strongest sector, to ride on the trend with the few strongest stocks

By the way, you may be interested to zoom into the chart and see the respective percentage of trends in various sectors.


Conclusions from Piont II:
1)  It illustrates a VERY IMPORTANT POINT that is IN CONTRADICTION with one of the popluar myth in the investment industry -->  That is DIVERSIFICATION the money into many sectors in equal portions as to reduce RISK.  As sectors trend pretty much follows the market (after all they are the components that create the market).

2)  In order to maximize the profit from the market and reduce risk.  One must always rotate money into the strongest few sectors when there is a trend.

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I found a picture on the web and it is Very True. 


There are certain risks in life one can simply choose to avoid it, such as if one don't know how to swim and he choose not to go near the sea... He may miss some fun for that but find more fun somewhere else.

On the other hand, there are some risks one cannot avoid, such as financial crisis... Then, the only logical answer in dealing with it is to master it. 
And,






if it is necessary...  Then, it doesn't matter how much time it may take.
Whether it may require 3 years, 6 years, 10 years or more,
something learnt is something gained. 

Time is ticking anyway regardless whatever nice phrases one may come out with. Such as:
"Only IF I have the time..."

With the current state of economy, which is full of potential for turbulences such as:
* Debts in certain countries in EuroZone building up,
* Energy Crisis due to Peak Oil,
* Over Population on earth,
* Aging of the Babyboomer in USA (in fact it is a worldwide problem, and more serious would be in China for its one child policy), and
* Increase in trend on Unethical issues exposed from corporation executives (worldwide)... etc.
I cautious myself not to be negative, but logically, it can only predict more financial crisis in local and global scale to continue happen in the near future...

So.  It is my simple idea that when more people willing to learn about it, then it would make market manipulation task more difficult for the minority and BALANCE IT.  Let's make it so! :-)


Bless You
KH Tang


A more throughout explaination on Sector Roation -> Back to Basics & The Galaxy Chart.

6 Comments->:

Yong Siri said...

Hi, Tang

Really appreciate what you share on the blog. I would like to know How I can understand more about the concept of Vibrational Energy..any link or sample coding of it.??

KH Tang said...

Good day, Yong Siri

The Concept of Vibrational Energy in the stock market is not mine... It is my understanding of W.D. Gann material.

Bless You
KH Tang

Yong Siri said...

Any books that you recommend to read for W.D. Gann ??

Thanks

Tang

KH Tang said...

Good day, Yong Siri

I saw your note in another post as well.

My suggestion is that it is much better off for people who are interest in the market to start learning from Richard Wyckoff than Jesse Livermore or W.D. Gann. Because it will surely lay a very strong fundation in Principle and Understanding how the market works.

After that, you can see through many tricks and gimmicks in the trading business.

If you are interested, you can google for "Wyckoff Stock Market Institute" and see what they got to offer.


Bless You
KH Tang

Yong Siri said...

I just checked out that website... so I should take a onlline course to get to understanding the concept... of Richard D. Wyckoff

anyway thank you brother....I'm a big fan of your blog... really useful....wanna meet you and say thank you to you by myself

Thanks

Yong

KH Tang said...

Good day, Yong Siri

That's a simple but good question. And, I would answer it for all who read this...

The answer is Yes and No.

No. IF you are merely interested, and would do it only at your convenient time. Because it is not a simple course work. Most people would not get to understand it at the first few attempt and give up. As the course would change individual belief system... and know that the market is mainly under manage and manipulation, and how to detect and follow the intention of the composite operators.

Yes. IF you are committed to work hard in learning a skill that would, in year(s) down the road, give you financial freedom.

I once read some where that the famous trader, Linda Raschke, said that if you understand Wyckoff, you understand 90% of Market. I would say, well, more than that.

In my view, if this course were to be introduced to every student in the high school as personal finance subject... Then the gap between the rich and poor would be greatly reduce in a matter of a decade. That's the reason why it is not popular!

I AM very much flattered that you say that I got a big fan. All I AM doing is merely some social service.

There may be sychronicity(缘)...

Bless All
KH Tang

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