Everybody is riding the Wall Street Roller coaster. Even if you are not invested, the headlines scream out one word: PANIC!

It’s hard not to join in the panicking. The Panic Crowd seems to be having all the fun these days. But they don’t have all the happiness. You see, it’s true what your mother told you: money doesn’t buy happiness, at least not for most people. But the lack of money does buy pure misery.

Did you ever wonder why so many office towers have fusion-sealed, micron-proof windows to keep office workers safe from any semblance of fresh air? It has to do with the stock market. During The Great Depression, just too many brokers were jumping out of windows. This enraged a nation of vengeful investors, who demanded to kill their brokers personally. So henceforth all windows were sealed.

(The good news is that by the time the windows were sealed, The Great Depression had ended, so there have been very few reported cases of enraged investors killing their brokers. However, there have been several incidents of "office air suffocation syndrome" — but that’s another issue for another column.)

Oh no! Not another Top Ten list!

Here are The Happy Guy’s Top Ten Tips for Staying Sane While Wall Street Crashes Around You:

1. Don’t panic. Enough people are doing that already; you’re needed elsewhere.
2. Don’t join the Panic Crowd. They are NOT having more fun, they just act that way to attract new members fold. Misery loves company.
3. Take inventory. Do you have the basic necessities? If so, you are OK. When they come to take away your television remote control, then panic.
4. Smile at your neighbor. A smile lifts everybody’s spirits, but most of all your own.
5. Remember the Great Depression. It sucked, but people survived. It’s amazing how many non-essentials we take for granted. Rent a movie about the 1930s, sit back, and laugh about how much better our depression is going to be.
6. Learn a new skill. In hard times, it pays to be very, very employable. And you may even be lucky enough to have two jobs. Oh, wait. That’s our problem now.
7. Start saving now. Then when the bottom falls out, at least you’ll have something to live on for three-and-a-half weeks.
8. Start spending now. It’s folks like you, saving all your money instead of spending it, that are killing the economy.
9. Stop listening to people telling you to save or to spend. In fact, stop listening to news about the markets. It’s just too depressing.
10. Ignore top ten lists. They are way too gimmicky and seldom give any truly useful information (except for this one, of course!)

There you have it. The Happy Guy’s Top Ten Tips for Staying Sane While Wall Street Crashes Around You. All the advice your mother didn’t tell you about financial markets, and more importantly, about keeping happy while others suffer. The bottom line is don’t panic, don’t invest all your emotions where your money is invested, and focus on what really matters.

About The Author

David Leonhardt is The Happy Guy. He is an energetic motivational speaker and author of Climb Your Stairway to Heaven: the 9 habits of maximum happiness. Visit him at

http://www.TheHappyGuy.com

David@TheHappyGuy.com

For years I have been saying you must have a fund that is outperforming the S&P500 Index. Well, I’ve changed my mind. Now I think your fund should be outperforming the NASDAQ Composite Index. So far this year, March 30, the S&P is up 1.3% and the NASDAQ Composite is up 9.5 %.

Have you checked your mutual funds for their performance so far this year? I don’t know how important your money is to you, but it is important enough for me to check out my funds at the end of each month. I live off that income. Some day you may be doing the same so now is the time to start tracking those returns.

For almost the last 20 years I have bought nothing but no-load mutual funds. There is absolutely no correlation that a fund performs better if you pay commissions. The only one who profits here is the broker, not you. In fact with an 8 1/2% front-end load you actually start 9 1/4% in the hole. Many no-load funds can be purchased at discount brokers for no commission at all. The call these NTF funds - No Transaction Fees. This is a great bargain that every investor should take advantage of.

One of the things I have been preaching for years and I have not changed my mind about this is the funds you own should be the best performers available. My definition of best performer is that you should only buy a no-load fund that has the greatest increase in NAV (Net Asset Value) for the past 6 or 12 months. Your broker is definitely not going to tell you about these. You can find them yourself .

Look in Mutual Fund Section of Investor’s Business Daily newspaper. Usually about once a week they publish a list of 25 mutual funds with their performance record for the past 6 or 12 months. If you are going use this indicator then buy the top one, two or three and only check them out once each month to see that they remain on the list. If your fund drops below 15th or 20th or completely out of the list you will then sell it and buy the fund that is at the top.

If you have a computer you may check out www.smartmoney.com as they list the top 25 performing funds. I would not buy one unless it has been on the market for at least a year. You may use the same sell strategy as the IBD above.

In real estate the smart strategy is to buy right. In the stock market the smart strategy is to sell right. If you follow this plan during a bull market you will make 2 or 3 times the increase of the S&P or NASDAQ Composite.

If you are willing to look at your mutual funds once each month for about 10 minutes you will be able to outperform 99% of the returns of financial planners, brokers or bankers. Is it worth it to choose your own funds? You have to answer that.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

The debate rages all over Eastern and Central Europe, in countries in transition as well as in Western Europe. It raged in Britain during the 80s: Is privatization really the robbery in disguise of state assets by a select few, cronies of the political regime? Margaret Thatcher was accuse of it - and so was the Agency of Transformation in the Republic of Macedonia. At what price should the companies owned by the State have been sold? This question is not as simple and straight forward as it sounds.

There is a gigantic stock pricing mechanism known as the Stock Exchange. Willing buyers and willing sellers meet there to freely negotiate deals of stock purchases and sale. Every day new information, macro-economic and micro-economic, determines the value of companies.

Greenspan testifies, the economic figures are too good to be true and the rumour mill starts working: interest rates might go up. The stock market reacts with a frenzy - it crashes. Why?

A top executive is asked how profitable will his firm be this quarter. He winks, he grins - this is interpreted by Wall Street to mean that they WILL go up. The share goes up frantically: no one wants to sell it, everyone want to buy it. The result: a sharp rise in the price. Why?

Moreover: the price of the stock prices of companies A with an identical size, similar financial ratios (and in the same industry) barely budges. Why didn’t it display the same behaviour?

We say that the stocks of the two companies have different elasticity (their prices move up and down differently), probably the result of different sensitivities to changes in interest rates and in earnings estimates. But this is just to rename the problem. The question remains: why? Why do the shares of similar companies react differently?

Economy is a branch of psychology and wherever and whenever humans are involved, answers don’t come easy. A few models have been developed and are in wide use but it is difficult to say that any of them has real predictive or even explanatory value. Some of these models are "technical" in nature: they ignore the fundamentals of the company. Such models assume that all the relevant information is already incorporated in the price of the stock and that changes in expectations, hopes, fears and attitudes will be reflected in the prices immediately. Others are fundamental: these models rely on the company’s performance and assets. The former models are applicable mostly to companies whose shares are traded publicly, in stock exchanges. They are not very useful in trying to attach a value to the stock of a private firm. The latter type (fundamental) models can be applied more broadly.

The value of a stock (a bond, a firm, real estate, or any asset) is the sum of the income (cash flow) that a reasonable investor would expect to get in the future, discounted at the appropriate discount (usually, interest) rates. The discounting reflects the fact that money received in the future has lower (discounted) purchasing power than money received now. Moreover, we can invest money received now and get interest on it (which should normally equal the discount). Put differently: the discount reflects the loss in purchasing power of money not received at present or the interest that we lose by not being able to invest the money currently (because we will receive it only in the future). This is the time value of money. Another problem is the uncertainty of future payments, or the risk that we will not receive them. The longer the period, the higher the risk, of course. A model exists which links the time, the value of the stock, the cash flows expected in the future and the discount (interest) rates.

We said that the rate that we use to discount future cash flows is the prevailing interest rate and this is partly true in stable, predictable and certain economies. But the discount rate depends on the inflation rate in the country where the firm is (or in all the countries where it operates in case it is a multinational), on the projected supply of the shares and demand for it and on the aforementioned risk of non-payment. In certain places, additional factors must be taken into consideration (for example: country risk or foreign exchange risks).

The supply of a stock and, to a lesser extent, the demand for it determine its distribution (how many shareowners are there) and, as a result, its liquidity. Liquidity means how freely can one buy and sell it and at which quantities sought or sold do prices become rigid. Example: if a lot of shares is sold that gives the buyer the control of a company - the buyer will normally pay a "control premium". Another example: in thin markets it is easier to manipulate the price of a stock by artificially increasing the demand or decreasing the supply ("cornering" the market).

In a liquid market (no problems to buy and to sell), the discount rate is made up of two elements: one is the risk-free rate (normally, the interest payable on government bonds), the other being the risk related rate (the rate which reflects the risk related to the specific stock).

But: what is this risk rate?

The most widely used model to evaluate specific risks is the Capital Asset Pricing Model (CAPM).

According to it, the discount rate is the risk-free rate plus a coefficient (called beta) multiplied by a risk premium general to all stocks (in the USA it was calculated to be 5.5%). Beta is a measure of the volatility of the return of the stock relative to that of the return of the market. A stock’s Beta can be obtained by calculating the coefficient of the regression line between the weekly returns of the stock and those of the stock market during a selected period of time.

Unfortunately, different betas can be calculated by selecting different parameters (for instance, the length of the period on which the calculation is performed). Another problem is that betas change with every new datum. Professionals resort to sensitivity tests which neutralize the changes that betas undergo with time.

Still, with all its shortcomings and disputed assumptions, the CAPM should be used to determine the discount rate. But to use the discount rate we must have what to discount, future cash flows.

The only relatively certain cash flows are the dividends paid to the shareholders. So, Dividend Discount Models (DDM) were developed.

Other models relate to the projected growth of the company (which is supposed to increase the payable dividends and to cause the stock to appreciate in value).

Still, DDM require, as input, the ultimate value of the stock and growth models are only suitable for mature firms with a stable and not too high dividend growth. Two-stage models are more powerful because they combine both emphases: on dividends and on growth. This is because of the life-cycle of firms: at first, they tend to have a high and unstable dividend growth rate (the DDM tackles this adequately). As the firm matures, it is expected to have a lower and stable growth rate, suitable for the treatment of Growth Models.

But how many years of future income (from dividends) should we use in a our calculations? If a firm is profitable now, is there any guarantee that it will continue to be so in the next year, the next decade? If it does continue to be profitable - who can guarantee that its dividend policy will not change and that the same rate of dividends will continue to be distributed?

The number of periods (normally, years) selected for the calculation is called the "price to earnings (P/E) multiple". The multiple denotes by how much we multiply the (after tax) earnings of the firm to obtain its value. It depends on the industry (growth or dying), the country (stable or geopolitically perilous), on the ownership structure (family or public), on the management in place (committed or mobile), on the product (new or old technology) and a myriad of other factors. It is almost impossible to objectively quantify or formulate this process of analysis and decision making. In telecommunications, the range of numbers used for valuing stocks oa private firm is between 7 and 10, for instance. If the company is in the public domain, the number can shoot up to 20 times the net earnings.

While some companies pay dividends (some even borrow to do so), others just do not pay. So in stock valuation, dividends are not the only future incomes you expect to get. Capital gains (profits which are the result of the appreciation in the value of the stock) also count. This is the result of expectations regarding the firm’s free cash flow, in particular the free cash flow that goes to the shareholders.

There is no agreement as to what constitutes free cash flow. In general, it is the cash which a firm has after sufficiently investing in its development, research and (predetermined) growth. Cash Flow Statements have become a standard accounting requirement in the 80s (starting with the USA). Because "free" cash flow can be easily extracted from these reports, stock valuation based on free cash flow became increasingly popular and feasible. It is considered independent of the idiosyncratic parameters of different international environments and therefore applicable to multinationals or to national firms which export.

The free cash flow of a firm that is debt-financed solely by its shareholders belongs solely to them. Free cash flow to equity (FCFE) is:

FCFE = Operating Cash Flow MINUS Cash needed for meeting growth targets

Where

Operating Cash Flow = Net Income (NI) PLUS Depreciation and Amortization

Cash needed for meeting growth targets = Capital Expenditures + Change in Working Capital

Working Capital = Total Current Assets - Total Current Liabilities

Change in Working Capital = One Year’s Working Capital MINUS Previous Year’s Working Capital

The complete formula is:

FCFE = Net Income PLUS

Depreciation and Amortization MINUS

Capital Expenditures PLUS

Change in Working Capital.

A leveraged firm that borrowed money from other sources (could also be preferred stockholders) has a different free cash flow to equity. Its CFCE must be adjusted to reflect the preferred dividends and principal repayments of debt (MINUS sign) and the proceeds from new debt and preferred stocks (PLUS sign). If its borrowings are sufficient to pay the dividends to the holders of preference shares and to service its debt - its debt to capital ratio is sound.

The FCFE of a leveraged firm is:

FCFE = Net Income PLUS

Depreciation and Amortization MINUS

Principal Repayment of Debt MINUS

Preferred Dividends PLUS

Proceeds from New Debt and Preferred MINUS

Capital Expenditures MINUS

Changes in Working Capital.

A sound debt ratio means:

FCFE = Net Income MINUS

(1 - Debt Ratio)*(Capital Expenditures MINUS

Depreciation and Amortization PLUS

Change in Working Capital).

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

It is wonderful to be alive in the information age. We know in a matter of seconds the change in the value of gold in Switzerland, the death of a world leader or the birth of a peasant in Israel.

We are inundated with facts and figures and the emotional tribulations of both famous and infamous people. Can we possibly assimilate all this? Does it help us in our daily lives?

When you begin to analyze it you realize all this information is just an agglomeration of stuff and contains no wisdom. If you were to memorize the Encyclopedia Britannica would that make you wise? Not really. You might know all about everything and you could answer questions on any subject, but unless you could correlate the facts and understand their interaction it would be of not much use at all.

I am in the financial industry. Would it help me to make more money to have memorized the Morningstar Manual? Oh, I would know the PE ratios and earnings of every company and a lot more, but will all that information tell me if the price of a company’s stock will go up? Again, not really.

Wall Street has the public believing the myth that you must do research; find out everything about a company, its competitors and that industry. Now that you have done that and all the figures say that according to conventional wisdom this is a "good" company does that mean the stock price will go up? Not really. When you do your historical study you will find there is hardly any correlation in price appreciation and the fact it is a "good" company.

Financial research is worthless. If it were wisdom everyone would be rich.

The reason Wall Street brokerage companies insist you do nonsense research is so you won’t sue them when their "recommendations" don’t make you any money. There is only one thing you really need to know. Is the price of the stock steadily going up? The simple way to do this is to check the weekly closing price for the past several years. You can get this data at the library. If it has a nice steady upward path what more do you need to know? Everything that is known about this company is reflected in the last price transaction. In that price you are seeing all the world’s research.

Information per se is not wise. It is the intelligent application of information that is wisdom. Apply your own common sense wisdom. Don’t listen to Wall Street.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

I don’t know what kind it is, but I saw it on TV running full speed along the shore (I don’t live near the shore) throwing up spray or maybe it was that one climbing up the steep mountain trail thru the mud, rocks and snow. Very exciting. (I don’t live near the mountains either.) WOW! Just what I need.

But there are a few obstacles.

It costs about $28,000. (That’s close to the average annual wage.) I have perfect credit and they’ll give it to me for no money down. All I have to do is make the monthly payments for the next 5 years of only $541. Maybe it won’t be that much because I’ll be trading in my car and I have it almost paid for it.

I can see me now headed for the beach or climbing that mountain in that shiny new car.

I tell my wife.

She says, “So”.

I say, “Waddayamean ‘so’?”

She elaborates that our car is almost paid for and hasn’t a scratch on it. It looks like new when it is washed and waxed and runs great. She whacks me with if I want a different car we can have this one repainted and put on new slip covers. The transmission and AC have both been replaced and it has less than 100,000 miles on it. She remembers the engine is rated for 200,000 miles and the tires are good for another 50,000 miles. How does she recall those statistics? I can’t win for losing with this woman.

There is a tone in her voice that I know means finality when she iterates, “You might want a new car, but we don’t need one”. My reply is the car might break down and may cost thousands to fix”. Her lightning reply, “Well, it won’t cost $28,000 and our insurance bill won’t go up either. If you want payments you can make an extra mortgage payment each month. Better yet let’s knock down that credit card debt.”

I hear the air hissing out of my balloon. No beach. No mountains. Forget all that practical stuff like saving for retirement or having some extra cash put away for emergencies. Damn.

BUT - my neighbor has a new car.

Al Thomas’ best selling book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2005

As a novice trader, you’ll often feel the need to trade.

You may be bored or frustrated. Or you just want to try a certain type of trade.

STOP!

Realize that you don’t have to be trading all the time to be successful. In fact not trading is often the very best decision you can make.

The market tells you when to trade. If you feel the urge to place a trade or find yourself chasing a trade, walk away from the computer. Better still; take the opportunity to meet a friend for coffee.

The trades you do when you’re feeling the “need” will usually be lemons – and leave you with a very bitter taste in your mouth!

They will usually not have clear signals, but you’ve convinced yourself they are there. After losing your premium, or much of it, you’ll look back and wonder how you could possibly have entered that trade. It’s happened to all of us, so don’t be too hard on yourself. Just don’t do it again.

The market is going to do what the market is going to do, not what you need or want it to do!

And remember the old saying, “If you can’t see it, it’s not there”. So if you stand back from your computer and the chart pattern or signal doesn’t jump out at you, it’s not there.

EASY IS BEST

The novice is constantly staring at charts, looking for and often inventing signals. If you have your strategy in place and you wait for the patterns to form, your entry points will FEEL easy. They will be obvious – you won’t need to be searching for them.

WRITE IT DOWN

Remember to keep a log book. We keep one, which includes any potential trades – those which look like they will possibly provide an entry in the near future. It’s good to see if they eventually develop into a trade. It will help guide you up to a point where you make a decision whether to enter, or to leave it alone.

Also, when you enter a trade, log it in your book with a few details and, commit to a stop loss point and a profit level where you will be happy to exit the trade. Remember, don’t be greedy – or you’ll see your premium reach that point, pass it and quickly drop back past your original exit point. You’ll then see how you would have been happy to exit at your prescribed price!

Much of the time there won’t be any trades for you to enter, so it leaves you with plenty of spare time for gaining extra knowledge and enjoying life. You probably won’t trade more than a few times a week. So, you can see, there’s a lot of time to be analysing charts – and feeling the NEED to trade.

Be strong and disciplined!

David Chandler

Ordinary People Making Extraordinary Profits!

For free mini-course on stock and options trading click the following link:

http://www.StockMarketGenie.com

Or visit our blog at:

http://stockmarketgenie.blogspot.com/

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

What a great statement!

I just heard someone use it in the context of personal and financial success and it struck me as a brilliant summary of an issue we raise in the SMG Tutorials.

Fear is a huge issue with a lot of traders. And interestingly, not just fear of failure but also fear of success.

I think there are two keys to taming fear [you can never eliminate it so don’t even try!].

The first and most critical is the one noted above – action. Action can tame fear in an instant. But it needs to be the right sort of action.

If you have a fear of heights, going bungee jumping may not be the best way to address it! But standing on a high bridge is a good first step.

In the same way, if you have a fear of losing your trading account, trying to face it down by putting it all on the line in one trade is not the best sort of action.

But taking considered, appropriate action [like the strict use of stop losses] is a way of taming fear. And getting past the paralysis stage that fear can create.

The second key is focus. By this I mean keeping in the moment and concentrating on the immediate action that is required to move you forward.

If your focus is too broad you can become overwhelmed by the possibilities. Or you might start to worry about things that are beyond your control or simply don’t matter – like what

But when you narrow your focus and remain “in the moment” in regard your trading, fear will be sidelined. The simple reason for this is that you can’t concentrate on two things at once!

And again, this will help overcome the paralysis that can be created by fear.

So if you suffer from fear in your trading - action and focus are the key!

David Chandler

Ordinary People Making Extraordinary Profits!

For a free mini-course on stock and options trading click the following link:

http://www.StockMarketGenie.com

Or visit our blog at:

http://stockmarketgenie.blogspot.com/

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

We learnt the following the hard way! If any of these things applies to you, don’t worry – there is an easy solution!

MISTAKE ONE

Lack of Knowledge and No Plan

It amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take some lessons or at least read a book before heading out onto the course.

The stock market is not the place for the ill informed. But learning what you need is straightforward – you just need someone to show you the way.

The opposite extreme of this is those traders who spend their life looking for the Holy Grail of trading! Been there, done that!

The truth is, there is no Holy Grail. But the good news is that you don’t need it. Our trading system is highly successful, easy to learn and low risk.

MISTAKE TWO

Unrealistic Expectations

Many novice traders expect to make a gazillion dollars by next Thursday. Or they start to write out their resignation letter before they have even placed their first trade!

Now, don’t get us wrong. The stock market can be a great way to replace your current income and for creating wealth but it does require time. Not a lot, but some.

So don’t tell your boss where to put his job, just yet!

Other beginners think that trading can be 100% accurate all the time. Of course this is unrealistic. But the best thing is that with our methods you only need to get 50-60% of your trades "right" to be successful and highly profitable.

MISTAKE THREE

Listening to Others

When traders first start out they often feel like they know nothing and that everyone else has the answers. So they listen to all the news reports and so called "experts" and get totally confused.

And they take "tips" from their buddy, who got it from some cab driver…

We will show you how you can get to know everything you need to know and so never have to listen to anyone else, ever again!

MISTAKE FOUR

Getting in the Way

By this we mean letting your ego or your emotions get in the way of doing what you know you need to do.

When you first start to trade it is very difficult to control your emotions. Fear and greed can be overwhelming. Lack of discipline; lack of patience and over confidence are just some of the other problems that we all face.

It is critical you understand how to control this side of trading. There is also one other key that almost no one seems to talk about. But more on this another time!

MISTAKE FIVE

Poor Money Management

It never ceases to amaze us how many traders don’t understand the critical nature of money management and the related area of risk management.

This is a critical aspect of trading. If you don’t get this right you not only won’t be successful, you won’t survive!

Fortunately, it is not complex to address and the simple steps we can show you will ensure that you don’t "blow up" and that you get to keep your profits.

MISTAKE SIX

Only Trading Market in One Direction

Most new traders only learn how to trade a rising market. And very few traders know really good strategies for trading in a falling market.

If you don’t learn to trade "both" sides of the market, you are drastically limiting the number of trades you can take. And this limits the amount of money you can make.

We can show you a simple strategy that allows you to profit when stocks fall.

MISTAKE SEVEN

Overtrading

Most traders new to trading feel they have to be in the market all the time to make any real money. And they see trading opportunities when they’re not even there (we’ve been there too).

We can show you simple techniques that ensure you only "pull the trigger" when you should. And how trading less can actually make you more!

David Chandler

For free mini-course on stock and options trading click the following link:

http://www.StockMarketGenie.com

Or visit our blog at: http://stockmarketgenie.blogspot.com/

Ordinary People Making Extraordinary Profits!

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

Trading is a fascinating activity.

There are so many layers to it. And so many paths that you can go down.

Soon after we first got interested in the stock market I became captivated by technical analysis. I finally felt that I was in control. It gave me great confidence to have all these tools to use.

We bought some expensive charting software and I started playing with the hundreds of indicators that it contained. Exotic sounding devices with impossible to understand mathematical formulas.

So, armed with all these new tools, I was sure we would be making a killing in no time. Because now we had science on our side!

And so I spent night after night, weekend after weekend trying to understand them. Backtesting. Trying one and then another.

But still we struggled to pick the winning trades.

I can remember buying this add-on to our software that gave us even more indicators. And I was convinced this would finally make the difference.

So I tried yet more indicators. Using different settings and different combinations.

But success still eluded us.

And it took us quite a long time before we understood why.

But before I explain what we discovered, let me tell you about eating bitumen.

My office is close to home. So some years ago I decided it was silly for us to have a second car. And so I traded it in and bought a scooter.

Now the only real problem with scooters or motor bikes [apart from getting wet in the rain] is that you are fairly likely to get hit by a car at some point!

It just stands to reason.

So I am always careful to watch cars to see which way they indicate they are going to turn or whether they are stopping.

But this one day I was in a bit of a hurry.

And as I approached an intersection a car was parked at the stop sign on my right. I was going straight through and the driver was indicating to turn left.

[At this point I should remind some of our overseas friends that we drive on the left side of the road!]

So I knew it was OK for me to keep going straight through the intersection. Or so I thought!

Next minute I am slamming on my brakes as the car accelerates across the street immediately in front of me. As my scooter hits the fender I go flying across the front of the car and land on the pavement on the opposite side.

For anyone who has experienced such an event you will know what I mean when I say that it was like the whole thing happened in slow motion. Quite weird!

I can remember looking at the car as it headed for me and not believing that this was really happening.

Because I was convinced it was going to turn left. The driver had indicated that he was turning so what was he doing on my side of the road?

But there he was. I couldn’t believe my eyes but eating bitumen convinced me that this was indeed reality!

Ever since, I don’t trust car indicators. Instead I have learned to look at the front wheels. Because this is the true indication of which way the car is actually going to go.

And you can’t rely on looking at the driver, even if you can see them. Because they often don’t seem to know where they are going, either!

But the wheels don’t lie!

The car can only go in the direction they are pointed.

Now what on earth has this got to do with what I was talking about before?

You remember I was telling you about the problems we were having with technical indicators? Well what finally dawned on us was that we were not taking enough notice of price action.

And so we started to study the chart before adding any indicators.

And suddenly we saw what was really happening. It was like looking at the car’s wheels instead of its blinkers.

You see, technical indicators are just what they say they are – indicators. Not reality. Not price action.

But an interpretation of price. A filter.

And so you need to look at a stock’s price chart on its own to get a picture of what is really going on.

This is not to say that technical indicators are not useful. But the critical thing is to only use them after you have analyzed price action. Not before.

Just remember – the wheels tell the truth!

David Chandler

Ordinary People Making Extraordinary Profits!

For free mini-course on stock and options trading click the following link:

http://www.StockMarketGenie.com

Or visit our blog at:

http://stockmarketgenie.blogspot.com/

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

Recently I watched my favorite football team lose a vital game.

I simply love this team.

I became so emotional about it; I thought “…this isn’t good for my health”. Can you believe that, but that’s how we get when we are passionate. I simply couldn’t believe (I didn’t want to believe) they could lose.

However, as a committed fan, I was going all the way with them. If they were going down, I was going down with them. After all, you don’t give up on your team simply because they don’t win every game. On this occasion, I was so wound up, willing them to win, knowing all along they had blown their chances.

I really should have walked away from the TV. However, I stayed for the pain. Oh, the exquisite agony. At the end, my shoulders and head were down, I felt like I’d run a marathon and deeply felt the loss for the team and myself. Was there life after this game?

I should have been saying to myself “… they’ve done well considering they’re a young team, they’ve done better than expected, so save yourself the heartache and face the fact…this season is not theirs…emotionally detach yourself.”

As I was lying on the settee, absolutely exhausted, analysing why I’d put myself through it, my mind went back to my early days of trading. We all go through this and hopefully only in our very early days – when we learn a few painful lessons. For some, it’s enough to put them off trading forever.

We buy a stock, believing the price will go to a higher level. We know it will rise, because it’s a blue chip and the indicators all line up. There’s no chance this will turn against us. It’s a stock we love because we’ve followed it for some time and it’s a household name – it’s been a great performer for years. Of course, we’ve got our mental stop loss sorted out before we go into the trade.

However, it does turn against us. Because we love the stock we see our stop loss taken out and what do we do… Nothing!

We love this stock and it will definitely bounce back. But it doesn’t and like a sports fan, you stick with your “team” and with every decrease in price, you feel that pain and you rapidly go down too - you too are a loser, not only in the sense that you’ve gone against the rules, but also you’ve lost your money.

Just like your favorite team, you can’t win every time. So, to protect yourself against losing, get out when your stop loss tells you – don’t let your love for a stock paralyse you. In this way, you’ll sustain a small loss, but have enough money left to go in on a winning trade.

So, never attach emotion to a trade – treat them all the same and trade your strategy. And always have a stop loss in place. Don’t rely on mental stops as love can make you do crazy things!

NEVER FALL IN LOVE with a stock.

David Chandler

Ordinary People Making Extraordinary Profits!

For free mini-course on stock and options trading click the following link:

http://www.StockMarketGenie.com

Or visit our blog at:

http://stockmarketgenie.blogspot.com/

The above comments are offered for educational purposes only. We are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.