The Art of Observation
The word observation,
in one sense, denotes the attentive watching of a person or event
or process. It may further connote an acceptance
of what is being observed without prejudice. In scientific research,
a decidedly passive slant to being an observer is stressed. In
this context, observation is the result or record of witnessing
something such as a natural phenomenon and noting developments.
Watching and waiting
is harder than it seems. It must be, because hopeful stock market
traders certainly have a hard time doing it.
Here is what I mean. Instead of watching what the market is doing
and then making trades that will profit from that movement, most
people are too impatient. They just can’t sit still long
enough for the market to reveal itself to them. Instead, they try
to make wild guesses about what they think will happen next week
or next month. In essence they have not learned the art of observation.
show you what I mean. In the chart below you can see a very nice
What do you
think? should we trade with this trend? Or should we think that,
because the trend has been in place for quite awhile,
a drop may come at any minute? What approach is more likely to
make you money?
As you are
deciding how to answer that question, you may be tempted to take
the side of looking for a trend reversal. If so, that is
the gambler talking, the hopeful or the greedy or the unrealistic.
trading if nothing else, involves an approach that stacks the
odds in your
favor. Always take the high odds trade.
Trends involve directional price momentum. In physics we say that
an object in motion tends to remain in motion. Trends have that
property as well. Until a force or series of forces that are counter
to the trend, act upon that trend with enough force to alter its
course, it will continue. It does not make a great deal of sense
to buy in a down trend simply because that trend appears to be “Too
Take a look
at the above chart once again. You’ll notice
that even though the overall trend is clearly up, there were, along
its course, minor counter trends. That is, as prices moved up over
a period of several months, there were several relatively brief
periods when prices dropped. It is these very drops that allow
us opportunities to profit from trend.
I have developed a model to describe a rational and now proven
method of determining when to enter trades that honors the basic
principle of trend. I call it the TTC model.
On the following
chart of the NASDAQ Composite Index I’ve
labeled entry points with arrows. These arrows have been placed
according to actual TTC entry signals for this chart:
Each of the green arrow heads point to the exact day when a long
position or buy should have been initiated according to the TTC
model. As you can see, the idea was not to hope for this extended
uptrend to reverse itself and head down. The chart clearly shows
that the path of least resistance is up. The beauty of the TTC
approach is that if the uptrend had indeed reversed over the time
represented on this chart we would have seen it and been in a position
to profit from that less likely eventuality.
Next week I will tell you more about this TTC model and how you
can use it to find excellent trades without having to rely on hopes,
feelings or tea leaves.
Stephen Cooper is the Director of OnlineOption.com,
a training and support web site for both beginning and advanced
the past four years, Dr. Stephen Cooper has been the primary stock
market trainer for Mark Victor Hansen and Robert Allen’s
Enlightened Millionaire Institute. He has now taught thousands
of students his proven trading strategies. He is the author of
The Online Option Trader, Windows to Wealth, and The Truth About
Money. He has also authored 10interactive chart analysis tutorial
CDs and contributed to several newsletters and publications.