Why Do Signals Help You Make Smart Investing Choices?

Why Do Signals Help You Make
Smart Investing Choices?
By www.ProfitableInvestingTips.com

Making smart investing choices is the key
to making a profit and avoiding losses.
http://profitableinvestingtips.com/candlestick-trading/why-do-signals-help-you-make-smart-investing-choices

But, how do you make smart choices?
What analysts do you listen to and when
do you follow the herd versus being a
contrarian?

There are signals that seem to occur in
every market situation.

But, why do signals help you make smart
investing choices?

Avoiding the Twin Demons of
Fear and Greed

When the value of an investment, like a
stock, is going up, it is easy to become
greedy.

And, when the value of that investment
starts to fall, it is easier to become
fearful.

These traits are not limited to you, Ms. or
Mr. Investor.

They tend to be shared by the majority of
investors.

Successful long term investors have gone
through many business cycles and have
come to recognize some basic signals.

None other than Warren Buffett has
advised investors to be fearful when
others are greedy as noted in an article
by Investopedia.

Warren Buffett once said that as an
investor, it is wise to be “Fearful when
others are greedy and greedy when others
are fearful.”

This statement is somewhat of a
contrarian view on stock markets and
relates directly to the price of an asset:

when others are greedy, prices typically
boil over, and one should be cautious lest
they overpay for an asset that
subsequently leads to anemic returns.

When others are fearful, it may present a
good value buying opportunity.

The problem with applying this adage is
market timing.

For example, stocks have been on their
way up for years.

It is true that the S&P 500 is down on the
day, week, and month.

And it is unchanged from its value at the
beginning of the year.

But it is nicely up over 5 years and hugely
up over ten years.

In this regard, why do signals help you
make smart investing choices?

One good reason is that they help you
avoid letting fear and greed drive your
investing decisions.

The Market Follow-through

The stock market seems to be correcting,
driven by a too-strong dollar, what is
shaping up to be a permanent trade war,
and the Trump tax cut stimulus wearing
off.

As such, many investors are adjusting
their portfolios as witnessed by a flight to
quality investments.

Each investment niche goes through
cycles whether it is agricultural
commodities, stocks, gold, or real estate.

Basically, many investors think that the
stock cycle is turning and they are
hedging their bets

based on fundamental factors such as the
trade war, tax cuts wearing off, higher
interest rates and the dollar, and the risk
of a global slowdown.

But, remember that all investors are
subject to the twin risks of fear and
greed!

In regard to make smart investing
decisions before and after a correction,
we looked at an article in Investor’s
Business Daily and a signal called the stock
market follow-through.

The follow-through is a simple concept. It
involves a significant gain in higher volume
in the Nasdaq or S&P 500.

After a serious correction on Wall Street,
most follow-through days occur at least
four days into a new rally attempt.

IBD’s The Big Picture column flags these
critical market turns.

When it takes place, investors should
actively search for leading stocks that
break out from sound bases.

What these folks are talking about are
opportunities to profit after stocks
correct and before another rally takes
place. (They also note that the signal is
not infallible.)

Nevertheless, it is a useful tool, but with
it and others, why do signals help you
make smart investing choices?

History Repeats Itself

The use of predictive tools to guide
buying and selling in markets goes back a
long way.

Japanese rice traders in the times of the
Samurai were using a tool they called a
“candlestick” as a visual guide to trading,
and predicting price movement in the rice
market.

Interestingly, a “bearish reversal pattern”
in Japanese Candlesticks requires a
follow-up confirmation day, just like the
stock market follow-through.

Both of these happen as a downward
trend (bear market) starts to reverse, and
both, when used correctly, can lead to
impressive gains as the market or an
individual stock heads back up.

How is it that both a modern “trading
signal” and one that dates back to when
there were still Samurai running Japan
seem to be picking up on the same
market movements?

Technical trading signals are developed
by looking at repeated market events and
identifying similar pricing patterns that
evolve in similar circumstances.

We can assume that human emotions
were the same for rice traders back in the
days of the Samurai as they are today for
those investing in and trading stocks.

It would appear that the sum total of
human emotions and human actions tend
to reliably generate similar patterns in
similar market situations.

If you believe that history can repeat
itself, perhaps you can benefit from some
of these signals when this market
corrects and then recovers.

Why Do Signals Help You Make Smart Investing Choices?

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Why Do Signals Help You Make Smart Investing Choices?