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.

I’ll show you what I mean. In the chart below you can see a very nice price trend.

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.

Successful 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 long.”

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.

Dr. Stephen Cooper is the Director of OnlineOption.com, a training and support web site for both beginning and advanced traders .Over 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.