With US economic growth not expected to reach the 2.0% level anytime soon, deflation on the horizon, and weakness in the financial sector dragging the rest of the economy down, it might help to remember a statement by famed hedge fund manager George Soros: "The worse a situation becomes, the less it takes to turn it around - and the bigger the upside." The question is, just how much worse will the current situation become? As of this writing, there is a possibility of the United States striking Iraq, which could cause further destabilization in an already shaky financial market. The effects are already being seen in the price of crude oil, which continues to rise as of late September 2002. Historically, a significant increase in oil prices has sent the US economy into a recession after a one-year period. If that happens this time, things could become a lot worse.
But in both bull and bear markets, trading continues and money is still made. Although retail traders may not be making headlines, as was the case during the roaring bull market that culminated in early 2000, there are others who are still trading, and successfully. They should be the ones making the headlines. For example, in the STOCKS & COMMODITIES interview this month we spoke with Teresa Lo, founder of financial education website trendVue.com, to find out how she has been able to beat the markets. With a decade of brokerage experience behind her, she was able to understand the mentality of the market, and by developing and applying a relatively conservative strategy she came out ahead. The interview starts on page 72.
Her strategy is, of course, different from the strategies of others: for instance, that of trader Chris Manning, who is discussed in Leslie Masonson's article, "A Master Systems And Pattern Tester" (page 130). Although Manning is more of a swing trader, he too has found a method that works well for him. Commodities traders may prefer using the auction market theory, an excellent tool for "hearing" the markets. In his article this issue, "Developing A Model With Auction Market Theory" (page 20), Donald Jones discusses a daytrading strategy you can apply using the auction market theory.
Whatever strategy you opt for, nothing is more valuable than your own experience, which plays a significant role in the success of any trader. Experience helps keep you intuitively tuned to the market, which will become especially important when the market finally turns around. To help you watch for that eventuality, we are introducing two new features: "Charting The Market" (page 134) and "Intermarket Review" (page 82).
As you will see from these charts, this bear market may be with us for a while, but if the market does as Soros says, you won't want to miss out on the opportunity to make quick and large returns on the upside.
Originally published in the November 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.
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