Excerpt from: “Crystal Ball for Investing and Trading” Book.
What is Trading or Investing?
Trading or investing are processes of buying and selling financial assets for an anticipated profit.
Before describing this process in detail, it is worthwhile asking a certain number of fundamental questions for a good understanding of the associated fundamental concepts.
What is the ultimate purpose of trading or investing? The answer is to make money, period.
How do we make money? We do it by buying low and selling high or by Shorting, meaning selling high and covering (buying) low.
How do we know when the market is low so that we could buy or cover, and high, so that we could sell or Short? These are excellent questions.
How do we determine the right timing to buy and sell the financial instruments with the highest possible gains?
The main purpose of the book is to answer these questions as specifically as possible.
The cause of making money is not the price we pay to buy something alone, but the delta (difference) between the price we sell and the price we buy. Do we agree on this? It is essential to understand that the delta matters, not the buying or selling price alone.
For example, when someone says, “the price is low,” he expresses an extremely bogus statement. To be more accurate, that person must also say the predicted selling price to enable the assessment of the associated delta. Now we know that the deal could potentially be profitable.
Even this statement is quite bogus. How profitable is it? We still don’t know how long it will take to sell the item for a potential profit. The profit won’t be the same if it takes one month to sell the item or five years. We know that the invested money could alternatively bring interests if deposited in a “safe” bank account.
Now, even if we know the buying price, the selling price, and the duration, the deal would still bear some uncertainty because we don’t know yet the level of risk. In other words, what could happen if the deal brings losses and if so, how much?
The main objective here is to understand that if we want to make profitable trades, we need to know (1) the buying price, (2) the selling price, (3) the duration, and finally (4) the potential losses.
Now this statement is complete and accurate because anyone can independently calculate the deal Reward-Risk Ratio and subsequently may decide to take or leave it.
Any advice that would recommend you a financial investment with a statement in which at least one of the previous four elements is missing, should be treated with skepticism.
Let’s be logical. Would you buy a new car, if you knew that it is not finished and ready to drive? For example, if the tires, steering, breaks, engine, or the fuel tank was missing?
Well, regarding trading, if you are unable to calculate the Reward-Risk Ratio of a proposed investment, it is like buying a car, which is not ready for driving.
You may now implicitly guess the main goal: There are good brokers and excellent financial advisors out there who know precisely what to recommend to their customers. However, some advisors may misuse the lack of knowledge of clients and may propose deals that are profitable for themselves, not for their clients. Do you personally know a professional of such kind?
The author feels quite embarrassed each time hearing renowned financial experts when answering the question “where the market is going for the next month?” by “I don’t know,” and immediately adding, “no one knows the answer.”
The Money Printing Strategy experts do frequently know the answer most of the time. Sometimes Money Printing Strategy doesn’t know the answer due to unclear or conflicting signals. In this case, it would recommend to stay away from trading until the signal is clear enough again.
Successful trading is essentially about correct timing to open and close trades.
When some experts say, “you invest now and in ten years the markets will be up,” this is a naïve and irrelevant answer. You could possibly get such answers from your parents in law who never did any trading or investing. With such kind of answers, you can be quite sure that those experts are making money through commissions they get from your business, not by trading or investing for themselves.
Furthermore, by following their customary advice to “invest now,” you can be quite sure that the probability of getting a good value for the Reward Risk Ratio of trades on that specific date would usually be poor.
There is a good reason behind why “they don’t know” and why they say “no one knows the answer”. This is because they are using a kind of fundamental analyzes for their predictions.
While fundamental analyzes may, now and then, have potential for predicting future trends, they are unable to predict the date or price of market trend-reversals with enough timing accuracy for profitable trading in the long run.
The main reason is that fundamental analyzes may take into account dozens of different qualitative parameters that cannot each be objectively quantifiable and measurable in a timely manner. Using fundamental analyzes for prediction of market trends is as obsolete and inappropriate by now as a few centuries back, people believed the earth was the center of the world and the sun was rotating around it.
Insisting to use it for profitable trading and investing is like the wrong strategy of trying to watch the sunset but facing toward the east, or unless insider information is misused.
The main purpose of Reward-Risk Ratio is to precisely determine the short timing-windows during which the reward is maximal and potential losses, minimal. As a consequence, you would open or close positions only during those specific short timing-windows. If an opportunity is missed out, then you would have to wait for the next time window. The Reward-Risk Ratio contradicts self made “experts'” recommendations when they always say “buy now” for the simple reason that the likely weak Reward Risk ratios at that specific date/times would most likely provide a “No-Go” signal for the criteria number 16 of Trading-Checklist.
Precisely, the generally poor Reward Risk Ratio is the main reason why Money Printing Strategy rejects the “Random Walk” theory that says “you can open Long positions at any time and whenever you want”. This is also the main reason why private investors generally loose money.
Main goal of successful trading is to prevent the opening of risky positions.
With the above knowledge in hand, you could easily challenge the professionalism of trading or investing advisors and experts.
Another argument often used by some unprofessional financial advisors, traders, or investors to demonstrate their professionalism, consists of saying that they have been in this business for 20, 30, or sometimes even 40 years.
While this argument may be objective, it is irrelevant what concerns the performance of strategy they use for investing or trading. Using the S&P-500 as a fair reference of their past performance is bogus too. When the S&P-500 gains 10% over a year and the professional 15%, she or he is indeed beating the S&P-500 by 5% and her or his portfolio grows by 15%. However, when the S&P-500 loses 10% over a year and the professional 5%, she or he is again beating the S&P-500 by 5%, but the portfolio loses still 5%.
True professionals demonstrate performances of their strategy by providing objective, fully transparent, independently measurable, and verifiable figures.
Professional measurement of performances is done not by telling how long they are in this business, rather by demonstrating the net average gain (or loss) per trade they have achieved since they started to trade, and how many trades they have made.
Whenever any part of information is missing, it is again like buying a car without a steering, fuel tank, break, or tires? True experts would tell you precisely, (1) the predicted future pattern of market trends for your interested financial instrument, (2) the date or price of Support level, (3) the date or price of Resistance level, (4) the position opening price, (5) the position closing price, (6) potential duration of trade, (7) level of associated risk (loss), and finally, (8) the strategy to manage losses. Money Printing Strategy uses the specifically designed Loss-Parking Strategy to manage losses.
Money Printing Strategy provides a detailed description of processes that lead to answering these questions for the Dow Jones in terms of (1) trends, (2) patterns, (3) prices, and (4) dates and duration in chapter 12. Figure 12.3 summarizes and illustrates Prediction of Market Trends until November 9, 2022.
Book: Example of Customers' review on amazon.com: ******************************************************************************* Best knowledgable book ever, June 27, 2016, By Amazon Customer -Verified Purchase(What's this?) Best knowledgable book ever: A Very comprehensive and analytic view and tools For today and future trading with understanding of worlds political and enviormental effect On the economy. For beginers and specialists. great book. thank you mr.kabir. ****************************************************************************** READ MORE..
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