Fact or Fake? Crash or Boom? How to take profits and avoid losses?

        

Earning Channel

 

Fake news and fake hopes are all over the place.

However, the stock market pretty much swings between facts and fakes. The market often overshoots or undershoots, which reflect fake hopes and fake desperation.

Most of the time the market stays around the facts. If the fact of a company is good and steady, its price often forms a steady upward channel. One the other hand, declining industries or companies will have downward channels in their stock prices.

So, in this article we’ll discuss how to use channel to prevent you from scaring yourself into selling everything or selling too early, or from becoming overly confident in chasing skyrocketing stocks when they were already expensive.

There are many articles discussing the Trump Rally. Some said everything is rosy, others said it is going to burst

Our purpose has been to help little guys stay away from troubles and use methods to rein in their greed and fear.

So, in the current situation, let’s follow Peter Lynch’s rule 19 again. “Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”

Before we come back to the rule, let’s summarize the factors that drove the financial sector up.

  1. Deregulation: To what extend? When will they be effective?
  2. Tax breaks: Personal income, including capital gain? Corporate income? Tax deductible interest expenses?
  3. Rising interest: More income for the banks? Higher inflation? More people and companies can’t pay what they borrowed?
  4. ETFs of the financial sector: As the ETFs’ prices and sizes grew, many of the banks are bought to the ETFs going. How many of these banks can weather the storm?
  5. Government spending on defense and infrastructure. How and when?
  6. Price and Value: Has the price out grown future value already?

How many of these will turn out to be facts? There are no absolute answers, and there are no exact moments when answers will be given.

So, don’t time the market based on your own interpretation and don’t try to out-smart everyone, either by trying to sell at the very top, or by betting on the opposite side before the market actually turns.

Please remember, we are little guys, even if we are correct, other guys may not see it, and some big guys might see it, but they can twist the market for a period of time. Without deep pocket, you’ll get burn even if you are right.

Let’s reinforce the necessity of following rule 19 by sharing our observation on the market regarding “deregulation”.

During the expecting stage or the early stage of deregulations, the market often reacted positively. Later, some smart guys or institutions would abuse the new deregulated regulation. The corrupt practices often made a few a lot richer, but caused disasters to the system, and little guys ended up paying for this. Notice that, when a disaster happened it often happened so fast, most little guys were unable to react to it.

The fake hope can extend the bullish run, that’s why don’t try to guess the top either.   There are signs for a top: more all-time-high stocks than ever and the boom has last since 2009. But, how do we know the last buyer has bought?

So, let’s stick to the fact – and how to react based on the fact. A simple way to do so is to stick to the stocks whose price movements form channels, and with matching fundamental.

What is a channel?

  • l A channel is a specific form of a trend, with at least two peaks and two dips, and the resistance and supporting lines are as close to parallel as possible.
  • l A channel indicates, in the period of time, people (little guys as well as institutions) think and act alike and are not hysterical.

However, you should use channel in both preemptive and reactive ways, especially now the stock is rallying from a high ground.

The preemptive way is to reduce long position and reserve cash for the great opportunity if the market crash.

The reactive way is to follow channel trading principles, and use the tools provided by Earning Channel to find good targets and to trade accordingly.

Using Earning Channel you can find many stocks whose monthly charts form good looking channels. You guess it, many of them are banks or ETFs. Still stocks from others sections also enjoy the run. To name a few you can find stocks that sell uniform, water, wine, and so on, grew 5x or 20x, from the time their stocks formed monthly channels.

STZ 1628%
FDEF 1391%
MBFI 520%
LRCX 738%
HRC 737%
HW 2285%
LKFN 570%
STL 451%
MSFT 431%
HRS 416%
UCFC 2065%
NEW 387%

What should you do with them now? It is time to follow the principle of channel trading to take profits and to prevent from losses.

The preemptive way of using the channel is to spot those recently broke up their monthly channels.

The break-up line indicates good timing to take profit after a long bull. You should sell some, when the first time the price crosses the break-up line; and you should probably sell all, when the price falls back to the original channel break up line to lock in your profit.

What shot up often shot down steeper and faster. That’s why many gurus told us to stay away from skyrocketing stocks. Why would you chase after a skyrocket now?

Let’s take a look at another situation: after an overshoot, the price movement falls back to the original channel. In this case, it is still better to take profit at the break-up lines. If you follow the monthly channel, when the price move back into the channel, it often formed daily channels for doing so. That means, if you still like this stock you can buy it back at a price lower than you sold it.

Below is an actual example for it.

Another situation is that, in the early or middle stage of a channel movement the stock grew stronger, and then continued its strength. In the case, the original resistance line often turns out to be the supporting line. For this condition, you could still take profit by selling some the first time the price crossed the channel break-up line.

Please be reminded, today, many of the stocks now are not in the early stage of a channel. Taking profit when the monthly channel breaks up is strongly suggested.

In the reactive way, you sell some at the channel-sell line that is close to the resistance line, and buy back at the channel-buy-point, that is when the price bounces back into the channel.

In the early stage of a channel you sell some and buy more to increase your position, so as to reduce the risk and to extend the profit. On the other hand, when you have gained a lot with a strong channel and the price/value is high, you should sell more and buy less to reduce your position and to take the profit along the way.

Please be reminded, today, many of the stocks now are not in the early stage of a channel. Taking profit when the monthly channel breaks up is strongly suggested.

In the reactive way, you sell some at the channel-sell line that is close to the resistance line, and buy back at the channel-buy-point, that is when the price bounces back into the channel.

In the early stage of a channel you sell some and buy more to increase your position, so as to reduce the risk and to extend the profit. On the other hand, when you have gained a lot with a strong channel and the price/value is high, you should sell more and buy less to reduce your position and to take the profit along the way.

The Earning Channel software, as well as the articles, tutorials and suggestions in the website and social media, are provided as tools and references to help users develop their own market analyses and make their own investment decisions. Users are ultimately responsible for the way in which they use this information to invest in the stock market. Nothing associated with the Earning Channel or the information presented in articles and tutorials should be interpreted as direct advice on buying or selling of securities.