Why Investors Buy High and Sell Low

The recent bear market should have convinced investors that they have to monitor and take control of their investments.  They learned that it’s not safe to turn their portfolio over to an expert and then rely that they won’t lose a big chunk of their life savings in a bear market.  So what is their alternative.  They can monitor their portfolio by simply applying a moving average to their investment vehicles.  I recommend that they use an Exponential Moving Average (EMA).  That’s because an EMA places more emphasis on what is happening now.  With the free charting programs available today like http://www.BigCharts.com it is easy to set up an EMA for each of your stocks, price mutual funds, or ETF’s you own.

The size of the EMA is very important.  I recommend that it not exceed 40 days.  I know that you hear recommendations to use 50 days or 200 days, but a lot of time can pass before you get a signal to buy or sell, and you can sustain large losses and miss large gains, waiting for a change in the trend.  Investors can test with the size of the EMA very easily, and come up with the best number of days to meet their personal risk tolerance.  It’s easy to do.  Then when you have your EMA posted against your investment vehicle(s), you can monitor to see when a change in the trend occurs.  I recommend that you use a 2 month-daily chart so that you can clearly see what is happening now.  When the EMA line turns up consider it a Buy Signal and when the EMA turns down, that’s a Sell Signal. It’s so simple and yet so valuable.

I believe that most investors rely on predictions and forecasts of where the stock market and their individual investments will go in the future.  That means that in order to be successful  their  predictions have to be accurate.  I frankly do not believe that it is possible to predict the future course of the stock market.  The market only gives us current information on what is happening today.  Ask any person who makes predictions what the market will do tomorrow and they cant give you an answer.

Since the market only gives us information one day at a time, we have to react to that information and base our decisions on what is happening now.  Yes, we can make decisions on what is happening today and we can decide if the trend on the market is changing direction based on the information that we are being given.  We can identify changes in the trend of the stock market, but we cant tell how long that change in trend will last.  If the market is in an up-trend, the market can change whenever there are more sellers than buyers on a given day.  And if that continues long enough, the trend will turn down.

So the trend is established by the daily market action and if that action is positive for a long enough time, the trend will be up, and visa versa.  As a market timer, my job is to use mathematics to determine when that change in trend occurs.  It can be done without making predictions or forecasts.

I developed the RIX Index many years ago.  The RIX is a mathematical formula that translates the market action every day into a number that represents the trend of the market for that day.  Its a cumulative number, so if the market goes up it will up.  The RIX numbers will take the daily action and increase on up days and decrease on down days.  I have a RIX Index for the NYSE and NASDAQ.  In order to get a Buy Signal on the NYSE I need to see a +12.0 and to get a Sell Signal I need to see a -12.0.   For the NASDAQ I need to see a +6.0 for a Buy and a -6.0l for a Sell.  Its that simple.  But more importantly, the RIX has identified changes in the trend of the stock market for 40 years.  It doesnt tell me how long the trend will last, but it will keep me in the market for most of the big up moves and it will take me out of the market for most of the big declines.  Thats as good as it can get when it comes to timing the stock market.

My mission is to help the average investor.  I would like to share my 40 years of experience, timing the stock market, with anyone.  I will send a free copy of my latest Newsletter to anyone who thinks that it might help.
I talk to a lot of people about investing.  Many of them are afraid to invest.  I don’t think they recognize their fears, story but the longer they talk the more I recognize the fears that are not obvious to them.  I had a few of those conversations this week.  One was from an existing subscriber and one was from  a potential subscriber who has called me on several occasions.  At the end on each of the calls from the potential subscriber he tells me that he understands the importance of my service , buy more about and that he is going to subscribe.  But, he never does.  The other conversation is with a current subscriber who did not get in the market even though he knows that the RIX has been on Buy Signals for almost all of the time since the March 9 lows.

What are the common threads in these  conversations?  Well the same ideas apply to most investors who can’t pull the trigger on up trends and down trends.  When the markets hit their lows in early March, all we heard was that the markets were going much lower and we were going into a depression like the one that happened in the 1930’s.  So that creates the fear that “if I get in now the market will go down, so I will wait so I don’t lose money”.  It doesn’t matter to these people that the trend of the market turns up.  They are afraid of losing money, so they stay on the sidelines.

Another fear happens when the trend of the market starts down.  Many investor want to keep their recent profits.  They are sure that the markets will go back to their recent highs so they stay too long because they are convinced that “if I sell now the market will turn around and go back up”.  So they stay and stay until their losses get so big that they make the decision to ride it out.  In bear markets, fortunes are lost waiting for the market to go back up.

Another fear occurs when the market continues up.  Those who did not get in are afraid to get in because they are sure that if they get in, the market will turn down and they will lose money.  So they wait for a pullback, that may not come.  If the big pullback does come, these same people will become afraid again and will not get in even though they are given a second chance.  Fear controls their decisions, so they can’t make a move.  They eventually join the “Buy and Hold Crowd” and ride out all market up and down moves.  They become “Sitting Bulls”.

If investors base their  investment decisions on emotions and fears, they will probably be unsuccessful.  When investors decide in advance where they think the market, or their investment vehicle, is going to go they will tend to look for indicators to support that decision.  They have a strong need to be correct even while their financial world is collapsing.

So emotions and predictions will not produce a successful investment strategy.  Neither will get rich schemes.  The true course to success is developing an approach that yields consistent returns.  I say that is achieved by spreading investments over many stocks like ETF’s or mutual funds.  The object then becomes to ride those investments up in major up moves and then keeping the gains by getting out early before major declines.  If you can do that, unemotionally, and if you let the “Power Of Compounding” take over, you will be a very successful investor, and you will become wealthy if you have enough time to let it happen.  Every young person today should be able to become a millionaire, by applying this simple strategy.

Yes, the key to investment success is becoming a “Mechanical Investor”.  If you can act on changes in the trend of the market without questioning the strategy, your unemotional decisions will make you a successful investor, and you will sleep well.

I provide the tool you need to become a Mechanical Investor.  It’s up to you to recognize the value of the RIX Stagey and to use it as your investment decision maker.  I have been using the RIX for 40 years with great success, and yes, I am a Certified Mechanical Investor (CMI).  If you have been with me for more than one year, so are you.

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