In the 1970's and 80's, some of the most successful traders came from other professions. You might expect professional gamblers to do well, and some did. But there were also a few psychologists that made their mark.
Jake Bernstein was one of the more well known. He was a psychologist-turned-trader, and applied his previous profession to his new one. His 1982 book The Investor's Quotient not only explored the psychology of a successful trader, but also of ‘the market'. The techniques can be applied not only to yourself, but to understanding the motivations of all the other traders and investors comprising ‘the market'.
Take the current situation. The S&P 500 has made at least 7 major attempts to penetrate the 2115 to 2135 area. The most recent attempt has failed, and the S&P has pulled back 3.3% so far, as traders decided it was better to book profits.
Who are the participants trading this market, what are their motivations, what could have caused the 7th retreat from that resistance area, and what is the potential for the remaining 7 weeks in the year?
You really need to answer just one simple question, after thinking about this:
There are approximately 9,000 mutual funds in existence. Picture yourself as a trader for a mutual fund. Your calendar year results are going to be seen, and extensively analyzed, by not only the investors in your mutual fund, but also the public, and more importantly, the fund managers. You will most likely get a bonus, possibly a 6 or 7 figure bonus that is based on your performance for 2015. Your performance is what will keep investor's money in the fund, and the fund managers will make that clear to you by the size, if any, of the bonus.
There are approximately 8,000 hedge funds in existence. You will get a share of the profits (and seldom have to share the losses) if you run a successful hedge fund. That's the key word – successful. Your year-end results, as well as your year-end holdings, will be carefully scrutinized. If you keep your investors, you get to continue racking your share of the gains. If they decide to pull out and go to another hedge fund with a better track record, there may be no beachfront retreat on St. Barts in your future.
There are approximately 220,000 Personal Financial Advisors in the U.S., helping individual investors make decisions about which stocks or funds to buy. According to the Bureau of Labor Statistics, their median income is $67,520 per year (as of 2012). They do not get 7 figure bonuses. But every one of them is likely thinking about the recommendations they make, and that their results will be closely scrutinized at the end of the year. Keeping every client is their goal.
Now, the question is simple. How likely is it that any of the participants mentioned above are going to risk their performance record so far this year on another failed market rally, with only 7 weeks left in the year?
What would you do? Answer that, and you will likely know what the market will do for the rest of the year.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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