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Last week I had another great opportunity to interview with Jeremy Wiseman at The Real Money Show. In this interview we went over gold’s Stage 2 breakout earlier this year and the pullback in gold since August. We also went more in-depth into Stage Analysis which readers might find interesting.
Since the interview, gold has continued to pullback below the 30-week moving average and looks like it could transition into Stage 4 with further weakness. I would attribute this failure to the breakout currently occurring in the U.S. dollar, and would expect gold to remain under pressure until the U.S. dollar stops rallying.
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I had the opportunity to interview with The Next Bull Market Move, the following is a re-print of that interview:
Today I caught up with Justin from the next big trade.com who in my opinion has an excellent grasp of the markets and how to navigate through them for maximum profit.
Hey Justin, thank you very much for taking the time to talk to us at the next bull market move, I’ve been a big fan of your work for a long time. Tell me, how did you end up becoming an investor and start speculating in the markets?
Thanks for the kind words and the opportunity to address your readers. I think initially I was attracted to the stock market from the basic idea that you could take money you’ve earned and turn it into even more money with little effort. But once I got into it I realized that even though speculating takes little physical effort, it takes great mental and psychological effort and understanding to be successful. I think that’s an important distinction because everyone wants to make money in the market, but few people put in the hours of education and study to really understand how to make it happen.
Your work relies heavily on a technical system known as ‘stage analysis’, can you explain what this is and how it helps you predict the direction of a particular market?
Stage Analysis is basically a trend following system that has specific entry and exit signals. It uses weekly price charts and the 30-week moving average to determine what “stage” a market is in. The goal of stage analysis is three-fold: to provide entry signals into explosive Stage 2 uptrends that can produce big gains, avoid Stage 4 downtrends that can destroy your capital, and avoid Stage 1 bases that take away other opportunities by tying up capital in markets that are going nowhere. I learned about this system from the book Secrets for Profiting in Bull and Bear Markets. Once I read about the system and saw it working in action I was hooked because it was exactly what I needed to be successful. It’s a beautifully simple system as well, many traders use overly complex systems that are unnecessarily confusing and not repeatable. I’d highly recommend reading that book and also you can visit my website at http://www.nextbigtrade.com/stage-analysis/ to learn more about the system.
What’s some of the biggest lessons the market has taught you?
In order to be successful in the markets you need three things: 1) A system that provides specific entry and exit signals 2) A system that has positive expectancy (winning trades overwhelm losing trades) and 3) the discipline to follow the system.
Most people never get to step 1. They simply rely on other people for trading tips or on a financial adviser for advice. Some people try to trade on their own but they bounce from method to method including listening to other people for advice. Those type of people may act like they know what they are doing but in reality they are confused because they don’t have a repeatable method to enter and exit the market.
Once you have a system in place you can measure the results and determine if what you are doing truly has positive expectancy, which means you can rely on it to produce positive returns over time. From there you need the discipline to follow the system and not deviate from it. This is hard to do because there is always temptations to follow other methods of trading the market that seem like they could be successful.
Once you have all of this in place, trading becomes so much easier and enjoyable because you know exactly what you are going to do. You remove the uncertainty and constant state of confusion that most traders are perpetually in.
I’ve been asking a lot of people about Uranium and if it’s the best contrarian play out there, what’s your opinion?
Uranium is a great example of why I adopted Stage Analysis as my trading system. Many “fundamental” analysts will tell you that uranium is a great investment, that there will be a shortage in the future and that due to this the price will rocket higher and uranium producers will make a ton of money. However even if this is true, are you willing to tie up your capital in uranium stocks for years on end and watch that capital get destroyed in the meantime? Because that is exactly what is happening right now.
In order to be successful in trading one requirement is to be able to recognize and avoid big losses, because your winners have to mathematically outweigh your losers. So you can’t take big losing trades and be successful. You have to take small losses and have your big winners outpace your losers.
Stage Analysis minimizes losing trades by getting out of Stage 4 downtrends before they become a disaster. That is what the uranium market has been in for years, and as long as that continues I have to avoid that sector if I’m using Stage Analysis.
Now do I think uranium stocks will perpetually be in a Stage 4 bear market? Most definitely not. Once I see uranium stocks completing a Stage 1 base and breaking out into a Stage 2 bull market, I would be very interested in them. But until that happens I have to be patient and look for other opportunities.
In one of your latest videos you talk about the recent pullback in gold, so is gold back in a bull market? And where do you see the miners going in the next 3-5 years?
Gold is definitely in a bull market, using Stage Analysis I talked about the potential for gold to break out into a bull market before it happened. And once it did break out into a Stage 2 bull market it was very explosive like I thought it might be, given the severity of the Stage 4 bear market that preceded it. I don’t like making predictions for markets 3-5 years out because I think that’s counterproductive and hard to trade. What I think the best approach is evaluate all markets based on Stage Analysis to determine the best sectors to trade, and if they happen to be gold and gold miners than that should be the focus.
And finally, what are you currently reading and can you recommended any books for our audience who wish to become better investors/speculators?
I would highly recommend Secrets for Profiting in Bull and Bear Markets. Especially for people that don’t have a system for trading or that want something simple and are willing to look at charts. It has everything you need to be successful including finding high potential winning trades and minimizing losing trades. Once you read the book I would take the next step and try and trade only using that system and nothing else. This will help anyone who is confused and keeps bouncing around to different methods. I think you’ll find that removing confusion is a great state of mind to be in when trading the markets.
Many thanks Justin.
For more information on Justin’s work go to the next big trade.com
I recommend it.