So, which is the better way to invest in stocks; buy-and-hold investing or swing trading?

For decades now “Wall Street,” has preached that the only “safe” way to invest in stocks successfully is to buy-and-hold for the long run.  Wall Street “experts” have claimed there’s no reliable way to time the market, and you have to be fully invested at all times to benefit from the growth potential that equities offer in the long term. But, does this traditional stock investing philosophy stand up to the current reality?

Let’s look at the current chart of the S&P 500 below as of the close of Tuesday December 11, 2012.   Note that it closed at 1427.84 which is LOWER than the high 4 years ago of 1557 in 2008, and is also lower than the high of 1500 in 1999 over 12 years ago.   As we look back 12 years ago and see that the market has not risen, but has actually gone down. There is literally NO growth in the last 12 years, but actually has a loss over time for the buy and hold investor.  Note there have also been periods when the market has been down significantly from the highs during the last 12 years only to barely climb back to the previous highs, without really breaking any new ground.

The investor’s who were betting on the “buy and hold” strategy to increase their portfolio over the last 12 years, have not only “lost” net worth but have lost more than a decade of opportunity!  One contributing factor to this slow down in overall growth are the almost continual bubbles and market corrections due to economic uncertainty.  First, the Internet bubble bursting at the end of 1998, then the attacks on the World Trade Center in Sept 2001 and the recession that followed, then the Real Estate Bubble in 2008, now we see the current debt bubble building in the European Union and here in the United States.  These bubbles create a lot of volatility in the market and lead to market swings and profitable trading opportunities.  And there doesn’t seem to be an end to these bubbles in sight.  Because of these “swings” the market has had tremendous movement over the past few years; therefore an active swing type of trading would have been much better and more profitable strategy

While many on Wall Street won’t admit it, the time for making money using buy and hold strategies are gone.  The best strategies over the last 12 years have been swing type strategies that take advantage of both the swings up and swings down in the market by both buying in the up trends and selling short in the down trends.

Swing trading has also become much easier and less expensive with the maturing of the internet over the last few years, giving “active” swing trader’s easier access to online brokers and broader investment choices like ETF’s, cheaper commissions, and cheaper, easier to use trading tools.

The old line brokers, still make loads of money selling “buy and hold” mutual funds to investor’s, 401k accounts, for example. The brokerages who issue mutual funds really hope that these accounts become more of a “buy and forget” investment, so they can continue to rake in billions in management fees.

With all of the tools now available, along with the strategies and new instruments available, smart and savvy investors have all but abandoned the “buy and hold” philosophy, in favor of more “active” swing strategies. In light of the fact that going back 4 years or 12 years the overall market hasn’t gone up but is actually lower; who can argue?

Trader’s Challenge: Buy and holder investors- Find a good short term or long term swing trading method (depending on your individual trading style) and take a more active role in your financial/investing future.

 

So what happens if there is no agreement in Washington by our politician employees by the tax cut deadline and our economy falls over the so called fiscal cliff? What does that mean to people like you or I who do internet stock trading for a living? How will our politician employees, who were hired to represent their employers to the best of their ability, make sure that our economy, their employer’s economy, does not slow down and stagnate?  Our politician employees, while frequently doing things that are completely ridiculous, are very consistent in at least one area; they operate under a system of crisis management.  Everyone in the country that is interested or at least paying attention has heard by now that Bush era tax cuts that have been in place and extended are about to expire.  This is no secret; regardless of if the average person on the street does not know what the fiscal cliff actually means or how it will impact them personally the politician employees that we hired to represent us certainly know.  They have also known for quite some time that there is a specific deadline and some sort of action must be taken to avoid the tax increases that most economists believe will slow down the already slow US economy to a crawl at best.

My questions are:  Why hasn’t this already been taken care of?  Why are the politician employees that we hired and pay to take care of such things for us procrastinating, posturing and wasting time when they have all been very clear on the fact that there is a drop dead date associated with the current tax cuts that we have all enjoyed?  Why is this even a relevant issue at this point when it should have been cleared up months ago?

The only answer that I can come up with is that for some reason our politician employees must believe that the drama and fighting and bickering that they have been doing over this issue somehow justifies their existence.  Each side must somehow believe that if they didn’t put up a very loud and obnoxious public fight their employers/bosses, who of course are us tax payers, would somehow realize that they aren’t doing their jobs very well and may possibly (hopefully) replace them all when the next opportunity to do so comes around.  Maybe this is all a diversion meant to create the illusion that they are worth the money and benefits that they receive from us during the time they are in our employ and of course for life.  I have never been able to figure out what any politician employee could possibly do in their career of representing us to garner a lifetime stipend with no reduction in pay or benefits.  Oh yeah I almost forgot, you just have to be in a position to vote your own lifetime salary and benefits into law riding on the backs of working people many of whom cannot afford to pay to keep their own homes or feed their own children while the politician employees relentlessly suck them financially dry.  They may even believe that a loud and very public debate will make them appear as though they are actually earning their salaries so they can continue to fall down in most other areas that are less publicly presented.

Maybe creating a loud and very public scene will get the attention that our politician employees clearly need and are looking for but I believe that most employers would prefer their employees go about their business and do the jobs that they were hired to do in a calm, quiet and professional manner.  If employees in the private sector acted the way our politician employees act they would be fired immediately and rightfully so.  I just hope that our politician employees are right in the respect that the loud and inefficient way that they conduct our business will continue to get allot of attention so that when the next opportunity for rehire comes up we will remember this and fire every one of them.  Hopefully we will be able to find replacements for each of them that will actually do the jobs that they are overpaid to do and move our country forward.  If that doesn’t happen, of course, they can be fired as well.  Maybe someday we will even find politician employees that will vote to end the lifetime stipend and benefits that we all have to pay.  Supporting your own family is tough enough but having to support former politician employee’s families is disgusting.

Today we are going to discus the concept of evaluating a chart based off of technical fundamentals for trading stock.  What does that mean? Well there are certain things that need to be looked at on every chart in order to properly evaluate it for trading.  As you trade your preferred strategy you will need to first identify some common technicals about the chart.  These common things begin with looking at the trend, then following that by identifying the areas of support and resistance.  Once these things have been identified you can then apply your rules to trading.

So, lets begin by looking at the charts below to see what we need to look for when identifying both the trend and support / resistance.  In this first chart you can see an example of how to identify the trend by using only price action on the chart.

Notice that the action of price on the chart forms consecutive areas of lower lows and lower highs.  This situation provides us with the information needed to consider this as a down trending pair.  The opposite would be true if the prices were making higher highs and higher lows.  In this situation the trend would be considered up.  Regardless of what else you use on a chart to help you identify the trend you will always use price action to help confirm your conclusion as to whether or not the trend is up or down.

The next chart illustrates the trend by using a simple moving average with a period of 40.  Here you can see and easily identify the direction that things are moving.  An up trend would be in place if the simple moving average was going up and a down trend would be in place if the line is going down.  You can also use the location of the price to determine the strength of the trend.  If the line is going up and the price is above the line then the trend would be considered stronger than if the line was going up but the price was below the line. The reverse would be true for a down trend.  Take a look at the chart below to see both a strong up trend and a weak up trend.

The other part of evaluating the chart from a technical stand point is to look for the areas of support and resistance.  These can be discretionary in applying them but necessary as we look for places to enter our trades.  The main idea for identifying these are to look for places on the chart, either horizontally or diagonally, that act as a barrier to price movement.  If this barrier is stopping downward movement then it is acting as support.  If the barrier is stopping upward movement then it is acting as resistance.  In future articles we will discuss more about the topic of support and resistance.

As we learn to properly identify trends and support and resistance we can look to enter our trades at the best possible times.  In the end we want to be entering in the direction of the trend when the price is near these areas of resistance or support.  To go long we would want the trend up while price is sitting near support and is we are looking to go short we would want the trend down and sitting near resistance.  Take some time to review this and apply it into your trading and while you’re here, check out a quick video I did on yet another easy trading method:

Hi everybody,

Yesterday I went on a bit of a rant about the fiscal cliff, how we got there, and what’s going to happen next. Well… I wasn’t quite done! So I’m going to get back into it, but this time, I’m going to leave you with more than my analysis of the situation. I’m going to give you a clear way on how to survive this fiscal cliff business, and even profit from it. Now, let’s assume that the president, the House, and the Senate come together with this plan I just outlined in my previous post, and we are able to reduce the deficit by $300 billion.

(Side note: the annual deficit for the past four years has been running $1 trillion a year.)

Where do you think the projection for 2013 is? It is $1 trillion. If they agree to this compromise, instead of the deficit in 2013 being $1 trillion, it will be $700 billion. Here is our current deficit, so that means it is going to go up in 2013 another $700 billion after all of our great politicians have declared victory. At the end of 2013, it is going to be $16.7 trillion.

If the republicans cave and the democrats get their way, the spending will not go down at all; it will actually go up. This deficit would then be even higher.

Either way, here is our year-end deficit for 2013. How about 2014? It will go up another trillion. Whatever they come up with here will only apply to this year with some vague projection for future years. They are good at making a vague projection and then they never make good on it. I would say it is a pretty good bet that the deficit is going to go up another trillion.

You have to ask yourself, “What does all this mean—a trillion dollars?” A lot of people cannot even relate to that and I do not blame them. It is certainly a bigger number than I am used to.

The GDP of the United States (the Gross Domestic Product, the sum total of all the economic activity in the United States) is in this same area; it is around $16 trillion or maybe a little higher. The annual deficit added to the current total debt is now approaching 100% of GDP.

In a couple of years, it is going to go like this: 110%, 120%, 130%. You know, Greece is at around 125%. We are not far behind Greece. The only difference I can tell between us and Greece is that we have a printing press and Greece does not. This is why we are able to forestall the day of reckoning.

People around the world are very, very, very nervous about the U.S. government’s situation and they are getting more nervous about the dollar by the day. This is why they are buying gold and silver. This is why there is so much turmoil in the financial markets day in and day out. The dollar’s days are numbered as far as its position as the reserve currency of the world.

The markets are going to go into great turmoil. You do not want to be sitting there wondering what is going on when that happens because it will be too late.

Let me make one other point. Some of you are familiar with the Laffer Curve. This is total taxes collected and this is tax rates. This is a 0% tax rate and this is a 100% tax rate. Obviously, if the tax rate was zero, you would not collect any money. As you increase the tax rate, the government collects more and more money.

When you go passed a certain point, the government actually collects less money even though the tax rate goes higher. You never hear about this from the politicians, but this is a well-documented fact in any economy, not just the United States. When rates go to a certain point, the revenues drop. Why? High tax rates kill business.

How does this happen? Business’ rate of return drop, so they invest in fewer projects or they pull their money out of the country all together. This means there are fewer jobs, less economic expansion, the economy suffers, and it is just a vicious cycle.

When the politicians talk about increasing the rates on the rich, you do not hear them talking about whether that will actually bring in more money. At this point, if we increase the rates to here, we are actually going to collect less money. You see, you will never hear about that until a year or two years later after all the hoopla is over with. This is why I call it a soap opera in Washington, why it is a sideshow. It is Washington insanity being played out day in and day out.

The media is very complicit in all of this. They just love it because they can get you all excited every day about the latest goings on, about what Obama said, about what Boehner said, and about what Reid said. It is all a sideshow. Even if they come to this agreement here, you can see from what I showed you that we are still left with an ever dramatically increasing deficit which will kill the dollar and ruin the economy. If the dollar goes down, the economy is going to be ruined and there is going to be a day of reckoning, I am sorry to say.

This sounds like a fantastic scenario. It will never happen in America. However, these numbers are fantastic and they have never happened before. We are in uncharted waters.

You have a choice to make. You can just sit here and hope things get better, the so-called “putting your head in the sand” and ignore everything or you can decide not to be a victim of these shenanigans and take action. You do not have to participate in this. You do not have to be entranced by the media and the politicians. You can take action and actually benefit from this insanity.

I think you do it, because markets become more and more volatile in this situation, there are more and more tradable short term trends than ever before. The markets are moving so fast. What used to take a year or two for a market to accomplish in going up or going down can now happen in a month. You have seen it.

In my view, it is time, if you have not already done so, to learn how to become a nimble trader of the markets by paying attention to risk first and foremost. You cannot just willy-nilly jump into the markets; you have to understand the dynamics, risk management, position sizing, and then how to wait for the very best opportunities.

If you have never traded, all of that sounds very complicated. I am here to tell you that it is not complicated, but you have to decide to peel away from watching the media for a half-hour or an hour a day. Quit doing that.

Ask yourself how it helps you to watch the news for an hour. It does not help you. Instead, use that time to learn how to trade. Start trading the stock market. Learn how to trade forex. Learn how to trade options.  I do not care how you do it, but go and do it. If you do not, these people that you think are going to help you are not your friend; they are not going to help. They are in a box and they have no way out. It is up to you to take action.

If you want to see my deliver my rant on camera, from start to finish, just watch my video below:

 

Anyone watching the little soap opera that’s going on in Washington? They’re calling it the fiscal cliff, and I’m having a hard time keeping quiet about it.

I don’t care where you are in life. Who your political affiliation is with… it does not matter. In my opinion you are being systematically screwed by your government. The fiscal cliff is a carefully orchestrated side show to keep you distracted from what is really going on.

I am going to show you in very simple terms why you are being screwed; why you are in jeopardy. You need to wake up if you have not already awakened to what is going on, so you can take appropriate action to safeguard yourself and your family.

This is not going to be exact, but it is going to be directionally correct.

The fiscal cliff, speaking in general terms, means that if the government does not take other action by January 1^st , then the so-called Bush tax cuts (which are now over eight years old) will expire. This is going to increase the tax rate in 2013 and—if it does not stop the economy, slow it down and cause a recession—could bring in an additional $100 billion. In addition, there would be mandatory cuts in spending somewhere around $600 billion.

If that goes into effect, it will definitely throw the economy into recession, and yet, there are many people who think we’re already in a recession.  If that is the case, then it will just throw us into a deeper recession.  It is not a good thing.

Instead of that, you have the president who, in my opinion, is not leading; you have the House with their proposals; you have the Senate absolutely quiet, doing nothing; and the clock is ticking toward the so-called fiscal cliff.

Now, let’s suppose that the president gets what he wants. He wants to increase the marginal tax rate on “the rich.” “The rich” refers to anyone who makes over $250,000 a year which is mostly small-business owners who provide most of the employment in the country. This does not make sense to me.

Let’s say, though, “What do I know? Maybe he’s right. Let’s increase the taxes on the rich and collect the $100 billion.” Well, the president does not want to cut the $600 billion. He does not want to cut at all. In fact, his proposal right now asks for more spending, not less spending.

However, let’s say the republicans get what they want. They want to cut spending on 2013 because they know the size of government is out of control and getting worse by the day, but they do not want to cut it $600 billion. Let’s say they want to cut it $200 billion.

Let’s say they are both successful and we end up averting the fiscal cliff. We reduce the annual deficit for 2013 by $300 billion. Everyone will declare victory and all is well.

Well, all is not well. This is why you are being screwed. A lot of you already know that we have a $16 trillion national debt. Most of that debt is shorter term to midterm. Interest rates on that debt are about 1.5%. You know the fed is manipulating rates and keeping them low ostensibly to stimulate the economy. I think it is because the government cannot afford higher rates.

At 1.5%, they are paying $240 billion a year just in interest. Can you imagine what happens if those rates ever go to 5% which is more typical in the past 20 years? In interest alone, they are going to be paying $800 billion a year.

Did you know that the annual total tax collection from individuals this past year was about $1.1 trillion? Can you imagine if interest rates go to 5% and the interest paid by the government is $800 billion? That is going to practically consume the entire tax revenue from individuals.

This is just getting back to the normal level of interest rates.

I’m running out of time right now, so I’m going to have to stop here for a bit. But I’ll be back soon with the 2nd 1/2 of my “rant” and I promise that it won’t be just the doom and gloom… although there’s plenty of that to go around. I’ll actually touch on a few ways that this might all be a good thing … if you do the right things.

At the end of the day, that’s the point I’m trying to make. We’re in trouble here folks. Deep trouble. But it’s survivable if you start taking your financial future into your own hands.

Till then, take a look at my video below where I tell you the WHOLE story.