Last week, I attended the annual symposium for the Chartered Market Technician (CMT) Association.
If you haven’t heard of CMTs yet, it’s because it’s quite a rare designation.
Outside of Wall Street’s trading desks, there isn’t much talk about CMTs, even though we are the best traders in the world.
After just one day there, I was quickly reminded about the secret to making money on Wall Street, and you won’t believe how simple it is.
It started when our driver drove right past the iconic 7,100-pound Charging Bull sculpture at the heart of Wall Street.
This isn’t the first time I have seen it, but coming on the heels of the latest stock market correction, it sure had more meaning.
And then one of the first speakers at the conference, Mathew Verdouw, drove the point home for me.
He is well-respected in the technical analysis field, and teaches classes on the CMT course work. He has studied technical analysis for nearly 30 years.
And he kicked off his presentation with a simple, yet important reminder — the secret to making tons of money in the stock market is…
…being invested in the stock market.
It’s a Bull Market
I know, this sounds easy enough.
And when I heard it, I thought — duh.
But hear me out.
It’s times like this that we need to be reminded more than ever about the secret to making money on Wall Street.
That bull statue that sits right in front of the New York Stock Exchange is a constant reminder about how the stock market performs over lengthy periods of time — it’s a bull market.
In hindsight, this is always clear, as even the worst crashes in the stock market eventually look like tiny blips on the long run of the stock market.
But when we are in the midst of even a modest correction, we can quickly lose sight.
I’m willing to bet many of you moved the bulk of your capital to cash after the recent market correction, and I don’t blame you.
The 1,000-point drop in the Dow Jones Industrial Average was a gut check for almost everyone invested.
But what’s your strategy for jumping back in?
Probably to wait for the market to climb back near its recent highs, or maybe even above that, to help assure you the bull market is intact.
This is emotional investing, though, and it’s what can lead you to wiping your account out while the market is actually doing just fine.
Here’s a scenario for how those emotions could drain a portfolio.
Let’s assume your plan is to buy back into the market once it reaches new highs. Then a few days or weeks later, market volatility returns.
We see another 10% correction in the market.
If you sell on the lows of that dip, you’ll have taken another big hit to your portfolio.
That means that while the market had been choppy and basically going nowhere, you’d be down more than 20%, assuming you sold at the lows on both of those corrections.
Meanwhile, if you simply stayed invested in the market throughout the volatility, you’d be back where you were before the market began the correction.
My point is simple: If you invest emotionally, you’ll get whipsawed around by market volatility.
When Market Volatility Strikes
Instead, you need to let the bull on Wall Street play the part.
Losing from time to time is part of the investing game. And when your strategy tells you to exit, just exit.
But the only way to come out on top is to jump back in when your strategy says so, and be invested to ride the bull higher.
Now’s a great time to scale back in a little here and a little there if you are sitting mostly in cash now.
Make sure you have an exit strategy that is sounder than emotionally selling your stocks when the market is volatile, as I described above.
It doesn’t necessarily matter what this strategy is, whether you have me and one of my colleagues guiding you, or you have your own principles for broad market moves.
Just have something to fall back on when market volatility strikes again to get rid of the emotional selling.
As long as you have a sound investment strategy, then you will make a ton of money from the stock market over any meaningful time frame — and that’s our ultimate goal.
Remember, the secret to making money from the stock market is to be invested.
If you’re not invested in the stock market, there’s no way for you to make any money from it.
Chad Shoop, CMT
Editor, Automatic Profits Alert