AU Editorial: You've Won the Lotto!
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October 30, 2009
Sorry - you didn't win the ultimate multi-million lotto, just a mere $100,000. So you're not set up for life, but it will tie you over for a while.
So what to do with your new money?
This is a question I always ask myself when I want to put money into the markets. I ask myself if I won lotto, would I put it into the markets right now? Would I treat it as a trade or would I treat it as a long-term 'buy and hold'? Or would I await a decent pullback?
Some Fund Managers, of course, because of their charter, have to buy into the market as more funds come in. And because they can't trade it - for numerous reasons - their buys by default are long term if not medium term.
When I ask the question, "would I buy now?" I look at a bare-bones line chart:
Chart 1
click here to enlarge
And at times such as now I conclude that even a Kindie Kid or man or woman from Mars would say that we are now massively higher than where we have been. Even with a modicum of explanation they might conclude that, based on past behaviour, we may see a retreat before another move higher.
So maybe it is not so tough to hold back throwing your newly won pocket money into the equity ring - although some do, for all sorts of reasons too numerous to mention - but all associated with matters of the mind.
Okay, so we wait.
But the trick is to try to figure out how deep will this retreat be and what time will it take to complete. Will it be a dip, a pullback or the resumption of a bear market downward spiral after a bear trap rally?
I have previously written in more detail about the distinction between all three and how one identifies which it is. If you have access to it, you can go into the Trading Tutors News archives and find a number of articles on this.
But for mine I will keep my lotto winnings for a while. Patience will pay.
Enjoy the ride.
Tom Scollon
Chief Analyst
Trading Tutors Team
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