It’s Time to Start Cordoning Off Your Profitable Positions

Everyone loves a bull market, and it seems that almost everyone fears a bear market.

Not me… I love them both.

In fact, I especially love it when stocks, or bonds, or commodities, or just about any asset class, goes down.

That’s because I make what I call “easy money” (and a lot of it) by flipping the securities I trade and invest in as markets head south.

I think we can reasonably expect a bear market before Halloween. Today I want to show you how I can see that coming, so we can all make some serious money when stocks fall…

It’s All in How You Look at It

The trick is to learn to “see” stocks, the market, or whatever you’re trading, turning down.

If you can see the turn coming, you’ll be able to…

  • Pocket the profits you made on the way up instead;
  • Get into positions to make quick money on the way down; and
  • Add your downside profits and the profits you saved to buy more stock at market bottoms.

[ad#Google Adsense 336×280-IA]That’s how smart traders and investors beat the market and make themselves wealthy.

It’s about “seeing.”

I have a good handful of metrics, chart patterns, and signals that I watch.

When it comes to bull markets, whether it’s a rising stock or the whole market is rising, I’m watching “price action.” Price action refers to how a security trades, what its price movement tells me.

Mostly I use technical analysis to interpret price action. Trend lines are super important to me. Second only to trend lines are support and resistance levels.

After more than 33 years trading billions of dollars’ worth of all kinds of securities, I can almost always see a directional change as it’s happening when channels, trend-lines, and support and resistance levels are breached.

But that’s not the only way I can tell what the market is about to do.

Listen to the Story the Market Is Telling You

Volume, or how many shares or contracts change hands, is super important, too.

Changes in volume patterns tell a story about the price action. For example, if a stock has been rising fairly steadily on decent volume, but sees increasing volume on days when it trades down, that’s important.

If volume picks up on down days, that tells me the stock is being liquidated and at some level, usually when it breaks support or an up-trend, investors are likely to throw in the towel and head for the exits.

Price action and volume help me see if there’s churning going on, meaning there’s a lot of volume but the stock or the market can’t rise any higher. That means the up-move has stalled and the next move is likely down.

You can do this on a macro level, as well…

This Works for Stocks and Even Entire Markets

As far as the broad market goes, that’s even easier to figure out than individual stocks. The same thing is true for entire asset classes. It’s easy to see directional changes in large “entities;” it’s like watching a super-tanker turn around. If you’re watching it all the time, it’s almost impossible to not see that it’s changing direction.

The market shows it’s weakening when breadth declines. When the market’s moving up but fewer and fewer stocks are participating in that up-move, which can be generated by a handful of big stocks with heavy weightings in a market index, a change in direction is usually on the way.

Another way to see directional change happening is when the trend of more stocks making 52-week highs reverses and fewer stocks are making new highs, while the number of stocks making 52-week lows is increasing.

And, fundamentally, markets are led by groups of stocks. When the leaders of a rising market turn tail, that’s a signal something’s about to change.

Here’s what the market is telling (and showing) me right now…

When you look at all these signals, all the ones I watch, the ones I just described, all of them are right now signaling a directional change for the market. All of them.

That means it’s time to start cordoning off your profitable positions so you don’t give your hard-earned money back. And it’s almost time to start putting on downside plays.

There’s going to be a lot of money lost when the market breaks the lows it made in August.

And there’s going to be a lot of money made by traders putting on positions to make some very fast money when the dam that’s been holding up markets finally breaks.

Which side you’ll be on depends on what you “see.”

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Source: Money Morning