Humans are always looking for ways to hack the system.
It’s perfectly natural.
We’re efficient animals who can multitask without even realizing it.
How many times have you driven your car home while thinking about a million other things.
And you safely arrive in your driveway, not even remembering most of the ride.
The mind is powerful like that.
Market Hacks
Over many years in the market, as a trader and an investor, I’ve learned the hard way that you can’t cheat the system.
It doesn’t work that way.
I have made one discovery.
And it begins with what we know to be true about the behavior of asset prices.
Asset prices trend.
They’ve done the math, and we know it for a fact.
You can read the white papers, and you can talk to the academics. You can even use common sense: Go see for yourself.
If the price of a stock is trending higher, there is a much higher likelihood the price of that stock will continue higher vs reversing and heading lower.
This is the truth.
This is why Technical Analysis works.
And if we know asset prices trend…and if we know we only get paid if we sell at higher prices than we buy…
We should probably spend time looking for those trends.
And so that’s what we do.
Multiple Timeframes
Whenever we’re looking for trends, the rule of thumb is to always go one timeframe higher than where you normally trade or invest.
In other words, if you tactically use daily charts going back six to nine months, take it one degree higher.
Look for trends on the weekly charts going back several years to get structural perspective.
If you’re a day-trader or swing-trader who uses 10-minute charts for tactical decisions in the market, look at daily charts for the longer-term time horizon.
This is the multiple timeframe approach.
My friend Brian Shannon wrote a book about this concept, “Technical Analysis Using Multiple Timeframes.”
Monthly Charts
Regardless of time horizon, my cheat code for trend identification is to analyze the monthly charts.
No one does this.
And they’re all wrong.
This is THE hack in the market.
We only get monthly candlesticks 12 times per year. That’s it. There aren’t that many.
Because of this, not only does this process help us identify the direction of primary trends, it gives us no choice.
It’s so easy to get lost in the day-to-day noise.
“What did the Dow do today?
“What did Powell say?”
“What did Trump tweet?”
To ignore it all, to be able to see past it, every day, in real time, is difficult.
That’s where the monthly charts come in.
With only 12 data points each year, this process of reviewing monthly charts forces us to recognize the direction or primary trends.
We don’t want to fight these trends. That’s a great way to lose money in the market.
We know for a fact, mathematically, that we want to be on the right side of these trends.
That’s how we are able to make money consistently over time.
All the Assets
So which monthly charts do we want to review at the beginning of every month?
All of them.
That includes the major U.S. indexes – the S&P 500, the Dow Jones Industrial Average, even the small-caps and mid-caps.
We look at indexes for countries around the world, including Germany and the rest of Europe, China and all of Asia, and Brazil and Latin America.
And we check ETFs that give investors exposure to these markets.
We also do a Sector-by-Sector scan: Energy, Financials, Technology…
We also look at Biotechnology, Regional Banks, and Semiconductors too. These are the Industry groups, and they’re also included in this process.
We do the intermarket analysis on longer-term monthly charts, such as Commodities, including Crude Oil, Gold, and Silver.
Our process also covers Currency markets and Interest Rates as well.
I have a list of about 150 to 200 monthly charts I review at the beginning of every month, with fresh monthly closing data.
It’s the most valuable part of my entire process.
This is the cheat code.
This is the life hack.
Nobody else does it.
And everybody’s wrong.
You know I’ll be here doing it every month. It’s the best way to make sure that you’re on the right side of trends.
Because we know asset prices trend, we need to find the best way to identify these trends.
And this is it.
Stay sharp,
JC Parets
Founder, TrendLabs