c03 JWBT016-Busby September 30, 2008 14:23 Printer: TBD
38 A FOUNDATION FOR SUCCESS
points in negative sessions have the bears been stopped? Where are the
price bottoms or points of support? Note these numbers. If enough nega-
tive sentiment comes into play and the bears are able to force their way
through the support level, they will likely move a good bit lower and hit the
next support tier.
Therefore, regardless of what you are trading, know the key numbers
associated with that product. Especially be aware of the important num-
bers that are nearest to the current trading price. To execute my strategies,
I track and record key numbers and I use them every day. My number-
tracking system gives me a long-term, intermediate-term, and short-term
market view. I use my RoadMapTMsoftware, and it makes life easier for
me. There are other software packages that track the market’s action; it is
also possible to jot down and follow some numbers manually. However, in
this complicated age, there is no substitute for a good computer program
for analysis. For serious traders, it is a must.
In order to explain my approach, I have to start on January 1. Each
year, I write down the opening prices for each stock, index, commodity,
or other product that I plan to trade during the year. The opening price
is the single most important number for that product throughout the year.
As long as prices stay above the annual open, I will consider a long stock
position. However, if a stock price falls below that yearly open, I will not
go long until that key price point is broken to the upside. The reverse is
also true. That is, the opening price is the line drawn in the sand between
the bulls and the bears. A move below the yearly open is evidence of the
strength of the bears. Therefore, if prices stay below that all-important an-
nual open, the market has a bearish sentiment. This single tip has saved
me a fortune in the current market. At the time of this writing, it is the
end of the first quarter of 2008. By respecting the yearly opens, I have no
long stock positions. In fact, I am short stocks and have been short. At the
time of this writing, the major indexes are down for the year, proving that
for the short term my stay-out approach has been successful. Figures 3.1
and 3.2 show the E-mini, mini Dow, and mini Nasdaq drops from the yearly
open through the first quarter of 2008. Using this one simple key number
and using it effectively has saved me a lot of money.
After I record the open, I continue to track the action from month to
month, week to week, and day to day. Each month, I record the monthly
opening prices. Are prices moving up or down in relation to the annual
open and the previous month’s open? Are the bulls or the bears in the most
powerful position? As each new week begins, I jot down the weekly open.
I continue the process week by week. In this way, I gain a long-term view
of the markets. The numbers clearly give me an indication of market sen-
timent and measure the degree of that sentiment. Therefore, if prices are
down for the year, I will hesitate before becoming very bullish. At least with