Transcription:

Hey, Dan Murphy here. When I was growing up, one of my favorite TV shows in the 80’s was Buck Rogers in the 25th century. The reason I am bringing this up is because I was thinking today what tool would I use if I had to go to future and trade the markets? What would still be working if I time travel to the future and had to be a trader?

I was really thinking about it and I thought I would go ahead and share some of that with you. We already went through that. Let us go skip to the next one.

The answer is momentum. Remember what I said in the previous video was that the reason why the market exists is price moves around. If prices did not move, you would not need a market. Therefore when you have something that is going up, it tends to keep going up. If it is going down, it tends to keep going down. Trend following would come to mind certainly.

Money likes to chase performance. If you have the Nasdaq in the late 90’s, well more money, more of the rising price, added performance, will attract more and more money. Of course it always ends up in a buzz right? You have to be aware of that. I will get into that in a little bit. Also, since money chases performance, then you have rotational strategies.

Basically, you are looking at the winning horse and then betting on the winning horse. So let us say that gold is going up the most right now. Then it is bonds, then stocks. It just keeps on rotating from one asset to the other. When it comes to a vault to the breakout, one of my favorites by far if you ever purchased the future’s boss system from me, you know, I love the termite trading method which looks for day trading.

The aim of the S&P 500 is on vaults. They break out fantastic results. The other thing that I really want to know, and does not concern this necessarily, but one thing that is universal. They even awarded the Novel price in economic for a bunk’s formula on this. Is that traders under estimate risks all the time. They do not really see what they cannot grasp. Meaning that shocks to the system of fat tails, black swan, as you might have them called them many times in the past.

Let us go ahead. I want to do some exercises to really educate you. I want you to get on board here. Let me show you some really cool stuff that I think will work hundreds of years from now, unless we are all robots or something like that. You never know when the singularity coming up. But if I time travel to the future…

Let me give you some simple tips that I think you can use in your trading right now. You do not actually have to go to the future to start doing this.

Let us tart at the beginning here. One simple filter for the success would be to focus on many asset classes. This is one that is really important. If you ever want to be a head manager, luckily it is really awesome now that you have so many different ETFS that you can trade at anytime you want. You do not necessarily have to dip your toe into the futures market anymore.

One time, that was around for portfolios for the 500,00o to multi million. If you want to control risk of any probability you will have to use futures which gives you control of too much money if you have a small account. Luckily, these days we have ETFs. There are a lot of people who are just focusing on trading stocks. Sure that worked in the boom and buzz cycles, which we recently had.

Basically we had a hell of a boom from 80s until 2000. After that, it has been a buzz. So, you can go long and then short that thing. But there are so many different assets that are really simple. I am going to explain a whole lot more about this that you should be concentrating on. Especially in light of the situation we are in now.

One thing that you know about stocks, they are mostly correlated. They are all doing the same damn thing at the same time. There are only so many stocks that are giving you leadership and you are going to fall victim of the whims of the background in the economics, where the market moves from one reason to another.

Say you are a holder of apple. You know that damn thing is going to the moon right? Which it finally did now which may it is the top or whatever. But in the meantime, when the economy starts to suck, even great stocks like apple can cradle and loose 50% of their value or more. We do not want to be doing that.

Let us go ahead and some really simple portfolio that is really liquid. The reason why I want you to focus on really liquid instruments and asset classes, is because look at all the damage that happened when you focus on this ill liquid asset classes.

In 2008 through 2009, when we had so many different securities that turned out to be ill liquids. There is no market for it. Whereas you look at these, I will check out every one of these. The S&P 500, which is the 500 biggest companies in the United States which is pretty much the biggest in the world.

Then you have bonds from the United States treasury. Extremely liquid. Gold, another extremely liquid assets class. Real Estate, extremely liquid. Oil. Everyone has got this. Every single country use oil. That would be an asset class that is going to pay you dividends, but it definitely something that holds value. That is what an asset is. Something that holds value.

One that I am not going to go through today would be foreign stock and bond market. Worldwide, a lot of these markets are correlated to the United States. I will just going to leave them out. We are going to look five. We are just going to do this exercise.

Before I go any further though, I have to give you the second simple rule for success, which is basically only trading with those asset classes when they are above a hundred day moving average. To make it simple, so you can see everything on the chart, I am going to be using ten month moving average. Let me show you a quick chart really quick before I get back to explaining this part.

Here is a chart of the S&P 500 using a monthly chart. This little blue line here is a ten month moving average. Let us go back to the presentation here. The reason why we use this simple filter is because of this. When you are in a currency like what we have worldwide. It is a fiat currency. Something is basically moving all the time because you have to keep on creating more and more of the stuff in order for the Ponzi to work. Right?

That is why you have some really good trends since the 1970s when the United States and the World really went off of the gold standard. Really, what happens is, if you have an asset class that is below its 200 hundred moving average, or ten month moving average, that is where a lot of the vault till it comes that there is something wrong with it.

What we should have when you are creating more and more money is that you should see everything just kind of inflating upwards. When it is not inflating upwards, that means that there is something wrong and typically, you will see the biggest declines. By default, they have to come from underneath the 200 day moving average.

When you take out that vault when you get the hell out of that market, you are not going to experience one of these 70% drips because if you lose 70% of your value of your holdings, it takes 330% gain to recover. That is no joke.

What I want to do now, going back to the charts, is I want to look at a ten-year window and see what you could possibly have invested in during that 10 years that was going up. Was everything going up during those 10 years, just doing those 5 asset classes? Let us see real quick. Let us fly through this fast. I am sure I will pause the video so it will not bore you to death here.

Obviously in 2002, you would not be in stocks or a god chunk of 2003, 4, 5, 6, 7 you would be. After that, not so much.

I am going ahead and switch over here and to work document. So, in 2002 you would not be in stocks but in 03 you can be in the S&P 500, 04, 05, 06 and 07. Okay. I think maybe you can see where I am going with this. Let us go ahead and I going to show you more examples as I fill this out for you with the magic of the pause button and everything.

Let us go to the next asset class which would be bonds. Let us go ahead and look at the 10-year bonds. Was that basically above this ten moth moving average? Well, it would be for most of 02, a lot of 03. Let us see 04, 05, not so much 06 and then we get back right into it by the end of 07, o8 and pretty much the entire time over here.

Let us just go ahead and for the sake of simplicity, we will just count out 06. Well, it is pretty interesting how quickly I made my point. That between stock and bonds, every single year is pretty much has been accounted before. But let us continue the exercise and see how many sectors, or asset classes rather, we could have been in.

Let us to gold. Gold has been the best performer here. Basically, we are just going to put every single year here and here even though we had a big dip in 08. Most of the time it has been above that 10 month moving average. So, let us go fill out the rest of that. Lots of asset classes now. We are tradable.

Now, let us switch to another asset class which will be the Real Estate which you could trade through REITs No so hot in 02, but in 03 and 04, 05, 06 and 07 not too bad and then you have a pretty decent recovery here starting in 09. It is falling around over here but let us just go ahead and only count a few of the very market years here.

Alright, that is how it looks like. This is a great way to piss off your spellchecker. Let us go ahead and go with our final example which is going to be oil. Oil will certainly bullish from 2002 to most of 2005 and then in 2006, nit so much. In 07 it is pretty decent and it completely fell apart in 08 and then it has been chopping around considerably. Bu we spent some time in this 200 day, or ten month moving average. Let me put that in there real quick.

Alright, there we go. S, I fill this out, basically, what was bullish around this time. Every single year is a count of four. Where it got tough was 2008. A lot of the times, asset classes will all move together. But, what I want to show you is that it is better to focus on what is in the bull market and not simply isolate yourself to one asset class.

Let us say, the stock trader or a bond trader. You should be trading every damn thing out there as long as it is liquid. I showed you five of the most liquid items out there. Certainly, there are lots more, but this is what I want you to focus on.

Of course, if you want to take this a step further, I was saying that, performance tends to attract more money, like flies that you know what. A lot of times, the best performing assets, they continue to up perform until they go buzz. They always go buzz guys, always. You always hear about how there is going be a paradigm shift or I am sure the next market that is going to boom and then buzz will be gold. That is fine. We have to prepare ourselves for all those things.

There is no paradigm out there that says something has to go up forever. That is why it was just ridiculous of course what happened within the Dazz stocks which would be the biggest bubble I think that we have seen in a long time.

Housing was kind of a slow train wreck, but it goes to show you that everything will go buzz. So, have an exit strategy.

What kind of trading method will work in the market and I think will always work going forward. Well, a lot of people do not like to trade this way because it kind of a pain, but I think that if you have some ingenuity then you can combine the best performing assets that are in bull markets.

We have already defined that. I have not defined this for you yet, but maybe I will do it in the future episode. We could like the turtle traders did back in the 70s and 80s and we could go ahead and buy end day breakout. Then simply sell, not sell short but just sell in end day breakdown. The best performing asset that is in the bullish configuration, number of 200 day, moving average comes to mind here. A lot of other ways you can figure this whole thing out, but I think this is going to work. Simply, it usually works pretty well.

Or we could do is instead of using days where you are basically buying into end day high. Let us say market, I will give you an example in chart real quick. Of course, gold will be a good example for me to do right now because it is getting back to bullish configuration.

Let us see that end day high was ten days. Real simple system. You go ahead and put your stock. Let us say, you look back. When today is the highest high of the past ten days, you buy. When it is the lowest in the past ten days, you sell.

You are not going to catch the bottom, you are not going to catch the tops, but you are going to do what I always talk about. That is, catching th4e meat of the move. When you go and eat the fish, you do not want to eat the head or the tail. You want to get that meat right in the middle.

Certainly, this is one way to do it. There are quite a few others, but you know what, I am running low in time right now but I hope this really helps you out in your focus, which you should be looking at multiple markets. Make sure they are liquid markets. We do not want to go through that the same baloney that happened back in 2008. Suddenly everyone realized that there are markets that they are in were totally ill liquid.

You also want to concentrate on bull markets. There is always going to be a bull market in something. Those are the two main strategies that I think I have proven today. I can go ahead, I will do some work on that in the future and maybe show you some trading system and so forth. I think that is really a good primer for you. Hope it helps.

Catch you next time. Dan signing off.