Editor’s Note: We’re sharing Shah’s article with you today because it tells you everything you need to know to be able to “read” stocks, asset classes, and even entire markets, so you can get into position when the market turns lower – and he forecasts a bear market may start in earnest in just about three weeks. Shah has used this technique to profit for more than 33 years, trading billions of dollars – take a look...
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.
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.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.