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Investing Articles

Trading Turn Dates

Trading is all about dealing with probabilities. When you have a method for calculating turn dates that produce a high degree of probability that the market will likely turn, it is important to understand how to properly deal with it.

 

Forecasting turns is not the same as trading. Forecasting is part of market analysis, not trading. Forecasting is all about dealing with probabilities, not trading. So where does trading enter into the picture?

 

Once you have the probability figured out to your satisfaction, you must then decide whether the information you now have in your hand can be exploited for profits. You must determine the potential for risk and what the minimum probable profit happens to be. When you have those two pieces of information, you can decide whether the risk is worth the reward.

 

When it comes to using TURN DATES for market timing and trading, some make the mistake of assuming that every turn date should be traded. This is far from ideal. In addition, some look at turn dates and start to anticipate that it will be a top or bottom in advance. Again, this is not ideal.

 

The ideal way to deal with TURN DATES is not to trade towards it, but following it. In other words, if you expect the market to turn on a particular date, and perhaps you expect it to be a bottom, it is best that you do not trade as if a bottom will occur unless you have some pretty good reason to believe so. If you are comfortable with following market cycles, perhaps you have that confidence. For most of us, however, TURN DATES are best used by trading FROM THEM, not TOWARDS THEM. In other words, wait until the TURN DATE arrives, and then you can see what it can or cannot form.

 

 


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For example, if prices have been dropping and a TURN DATE arrives, the obvious expectation is for a bottom to form. If you have evidence to suggest this is likely, such as noting price reacting off support, you'd want to be looking to BUY the market at that time. Another way is to WAIT until it confirms the bottom and then buy into the market.

 

It is dangerous, if all you are using are TURN DATES, to trade TOWARDS the date because you expect it to be a bottom (or top). Anticipating a bottom for a future turn date and then selling into the market because of that belief alone can be a quick way to lose a lot of money. This also includes TURN DATES that when calculated indicated a higher probability to be a bottom, or top. Just because the indication leaned strongly toward a bottom over a top (or the other way around), it is better to simply LET THE MARKET SHOW WHAT IT WILL LIKELY FORM when that time comes.

 

I cannot stress enough the importance of letting the market tell the story when it comes to using TURN DATES. When I trade using FDates, I may have some reason to expect the next FDate to be a top (or bottom). Expecting it to likely be a top does not indicate that I should buy the market. Rather, if I'm going to buy the market, it is because a bottom is forming or has just confirmed from an FDate. I'm going to trade FROM the date, not into it.

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