How to perfectly time a niche investment, just as prices soar

Buying Apple shares in the 1980s, just as its value goes stratospheric, scooping up a fortune.

It’s the investors dream. Right?

But how do you know which of the investment opportunities are the ones that are genuinely about to take off, and which are the investment equivalent of an email from a West African prince looking to transfer $2m into your bank account?

So, when’s the perfect time to buy?

I like to read the papers, I follow financial news, announcements from central banks, etc …

… and I’ll admit that I have an opinion on which way currencies will move … whether markets are about turn … and which niche markets might actually turn out to be something …

The longer I’m in this game, the more I like to think that I know what I’m doing, and that my opinions could turn out to be right.

In a moment, I’ll show you exactly where that thinking is leading.

First, let’s look at those Bitcoins … it’s tough to see where the inherent value in a cryptocurrency lies.

Bitcoin is a payment system, like a credit-card system, or a cheque book (now I’m showing my age), but it doesn’t charge transaction fees, so no value to be found there.

It’s a currency (ish). In which case its value could be driven by trade flows, or interest rates. No value there, either.

And they have no exclusive ownership of the blockchain technology, which is why rival cryptocurrencies are trying to muscle in.

But human beings have a long history of investing in things with no inherent value. Arguably gold also has no inherent value (although it is very shiny). And a lack of long-term inherent value doesn’t mean that there isn’t cash to be made from the ups and downs that Bitcoin is experiencing right now.

But is now the right moment?

How can you tell?

Making judgement calls

As I confessed earlier in this post, I do have opinions about markets and investments. And, having visited pubs, had a haircut, sat in the dentist’s chair … I’m aware that other people have opinions about these things too. When people know what I do for a living, they like to share their opinions with me.

Very often my opinions about what markets will do come into direct conflict with what my trading strategy tells me to do.

Let’s say my trading rules tell me to buy the GBPUSD, but I know that within a few hours, Mark Carney will be making a speech, and I suspect he’s going to be less hawkish than he’s been in the past. Wouldn’t I be better of waiting, or sitting out of this trade?

Surely this is a situation where years of experience in following this kind of data can stand me in good stead?

So, what do I do?

Sometimes I bow down to my ‘superior knowledge’, and I’ll ignore my trading rules, because I think I know better.

Almost invariably, I’m wrong.

Forex markets and indices are too big and too liquid to be predicted by knowing about the news or having an ‘inside track’. If we think we ‘know’ something … chances are that other (bigger) money ‘knows’ too.

There is no superior knowledge that will tell you which way markets will move.

Trying to find the perfect way in to a niche, highly volatile market will, more likely than not, leave you out of pocket.

Sure, the odd person will time it right.

Let’s face it, I’m sure there are people out there who’ve made a killing from Nigerian mining companies – but that’s cold comfort to Boris Becker.

So, what’s the solution?

If Boris Becker had put his $10m into a boring index fund instead of a Nigerian mining company, he’d have plenty of money to provide for his loved ones and his old age.

You may think that sounds very dull, but it’s advice straight from the desk of Warren Buffett.

A few years back, in a letter, Buffett advises his wife, in the event of his death, to put 10 per cent of their fortune into short-term government bonds, and 90 per cent into a low-cost S&P index fund.

I’m not suggesting that you give up trading altogether. But I am saying that you should give up trying to outsmart the market.

The real money is made by people looking for steady, solid returns from a strictly rule-based method.

No “Get in now while it’s cheap” …

No “I read an article about this, and I just know it’s about to go stellar …”

It’s about finding a solid method, and sticking to the rules of that method.

The simpler those rules are, the easier it’ll be to stick to them.

But there is one exception …

There is one situation in which listening to my own opinion genuinely does make me more profitable. It’s a situation which crops up now and then, and – when it does – I’ll happily throw out my trading rules.

These are major market-moving news events and economic announcements – the kinds that could easily bump the stop levels on my shorter-term trades. I’m talking about a general election or a referendum – the big stuff.

I will generally close down short- and medium-term positions over this kind of news event. I’ve compared my results to what would have happened had I kept trading, and – on average – this has saved me a great deal of money (as well as a lot of stress).

In these situations, I’m not trying to predict what’ll happen – I’ve no idea (I do have an opinion, for what that’s worth!). But I suspect there’ll be high volatility, and don’t want to leave vulnerable trades sitting in the market.

So please, don’t attempt to time markets or predict what’ll happen. We can’t ‘think’ our way to trading success. Instead, we need rules-based systems we can rely on.

And, if you’re short of those, check out the phenomenal results that Heikin Ashi Mountain and Hav Trading are producing this year – and please watch out for a special offer coming up next week.

 

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