Some investors like their strategies wrapped up in nice, neat packages that have catchy names or mantras. FANG stocks, anyone? How about the Nifty Fifty, for those of you studying market history? Or “the trend is your friend”?
These mantras may sound nice, but following them can wreak absolute havoc on your portfolio.
Of course, one of the biggest is “sell in May and go away.” But investors who follow that are passing up massive returns.
It actually used to be a pretty good philosophy because it exploited the seasonal cycle in the stock market. And by “cycle,” we mean that the market tended to be strong in the winter months and weaker in the summer.
Notice the use of past tense. Since the financial crisis, this trusty old saw has not been much better than a crap shoot. Sometimes it works, and sometimes it doesn’t.
In fact, avoiding the markets in May, or in any month, is one of the worst mistakes investors can make. There’s no reason to pass up gains because of some outdated way of thinking.
And for May 2018, Money Morning Options Trading Specialist Tom Gentile has created a three-part plan for subscribers so they can bank massive profits from this month’s volatility.
As Tom will show you, reading the signs the market gives you is much easier than you think.
Here are Tom’s three strategies for beating the markets.
How to Beat the Markets, Strategy No. 1: Find the “Cheap or Dear” Prices
By looking at a chart of the market or an individual stock, you can see where buyers got aggressive. That’s where they think the market is cheap.
And you can also see where sellers took over. Those higher prices are called “dear” (meaning expensive).
Put them together and they’re called “support and resistance levels.” Best of all, they tend to repeat over time. Why? Because people remember what the price was that “they should have bought.” And they remember the price at which “they should have gotten out.”
Tom identified the lows of February and March as such areas of increased demand or support. The market quickly bounced back when it hit those levels.
Conversely, you can also see where supply surged and investors decided the price was too high. Unlike support, this resistance level fell over time. And when we combine support and resistance levels, we get a “triangle” or “coiling shape.”
All that means is both bulls and bears got less certain, so they backed off. It also means there are pent-up buying and selling pressures, which will lead to the next move, either higher or lower.
When the market finally moves out from the triangle, we’ll know which way it is going, and we can act accordingly.