Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

How Traders Get Wealthy Playing Apple, RIM, and Gold Stocks

By

The sum of the market's moves form an unquestionable cyclical pattern consistent within all time frames, which traders can learn to profit from.

PrintPRINT

I know most Apple (NASDAQ:AAPL) enthusiasts will be rolling their eyes at this analysis, and that's fine because the rest of us need people to buy our shares as we unload long positions or sell Apple short. All joking aside, the charts below clearly show some very interesting information you cannot afford to overlook. At minimum, take a quick glance at these charts, which tell the full story on their own.

The Four Stages of Apple and Research in Motion (NASDAQ:RIMM)

Markets are cyclical in nature. There is a constant process of expansion and contraction, rally and decline that continues as the market determines the theoretical fair value of a security. The sum of these moves forms an unquestionable cyclical pattern consistent within all time frames.

During a cycle a stock enters different phases of support, from irrational exuberance typically found before its peak, to periods of widespread discontent where its price is continually punished. However there are never distinctly good or bad stocks.

Every "good" stock will eventually become a bad one and vice versa. There are, however, good trades; trades that reward an investor who has correctly anticipated a move and positioned himself accordingly.

It is important to note that this works with commodities like gold and silver, which are trading at a very interesting point in their life cycle. Looking at various time frames in SPDR Gold Trust ETF (NYSEARCA:GLD) and iShares Silver Trust ETF (NYSEARCA:SLV) you can see this.

Classic economic theory dissects the economic cycle into four distinct stages: expansion, trough, decline, and recovery. A stock is no different, and proceeds through the following cycle:

  • Stage 1 – After a period of decline, a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers. Price action is neutral as sellers exit their positions and buyers begin to accumulate the stock.
  • Stage 2 – Upon gaining control of price movement, buyers overwhelm sellers and a stock enters a period of higher highs and higher lows. A bull market begins and the path of least resistance is higher. Traders should aggressively trade the long side, taking advantage of any pullback or dips in the stock's price.
  • Stage 3 – After a prolonged increase in share price the buyers now become exhausted and the sellers again move in. This period of consolidation and distribution produces neutral price action and precedes a decline in the stock's price.
  • Stage 4 – When the lows of Stage 3 are breached a stock enters a decline as sellers overwhelm buyers. A pattern of lower highs and lower lows emerges as a stock enters into a bear market. A well-positioned trader would be aggressively trading the short side and taking advantage of the often quick declines in the stock's price. More times than not all of Stage 2 gains are given back in a short period of time.
While these stages are historically defined over long time periods they actually exists in all time frames, allowing traders to take advantage of a cycle regardless of their trading time frame. Fortunately this phenomenon, known as a "fractal," exists within all security markets. A fractal is simply a rough geometric shape that can be subdivided into smaller parts that have the same properties; a smaller version of the whole.

This is important to understand because through technical analysis we are often analyzing multiple time frames. In the short term, the four-stage model may repeat itself many times. The combination of these short-term cycles form a medium-term cycle, and the combination of multiple medium-term cycles form a long-term cycle. Recognition of these cycles is paramount in trading success.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE