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Had retirees invested, they wouldn’t have financial issues

No matter where you live, you probably face similar financial issues to people elsewhere in the world. As a society today, most people have to rely on others. For example, we rely on others to get our salaries on time, or that others will grow our retirement fund big enough to support our current living standards in retirement. But unfortunately the current demographic in the western world is not optimal and is particularly challenging for the pension system.

The current generation of retirees probably can’t do much to improve their situation. However, the active generation still has everything at their disposal to guarantee themselves a better and more stable future. To get there they must learn how to invest and use the power of the compounding interest. As Einstein said so many years ago, compounding interest is the 8th wonder of the world.

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Trading workshop in April

I’ve organized a test workshop in February. I got a really nice feedback so I decided to organize another one. This time a public one.

The workshop will be held in Ljubljana, Slovenia between the 16th and 18th of April. It is an advanced workshop, but it’s also suitable for beginners, because we’ll cover the basics of every topic. You can read everything about the workshop in the blog I posted recently, Trading workshop.

My Slovenian speaking readers can go to a Slovenian version of the page with all the necessary information and a sign up form there, Delavnica Kako postati uspešen trgovec in investitor.

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Are cryptos trying to bottom?

Cryptos have been hit hard in the past 15 months or so. Most of them fell in price by 90% or more. This was needed, there was just too much junk, too much shitty projects and scams. The main question is, are we cleared of this now or not yet? And can the developments and improvements, that kept a strong pace, turn the trend around?

Last summer I was warning my readers that if Bitcoin falls below $6,000 you should get out as the space could shrink yet again. I know that some people like picking bottoms, there are strategies that make people buy down trends because they think they’ll miss a rally otherwise. I greet that, not because it would be a great strategy, but because we can find buyers when we need to get out.

If you follow me regularly you know by know that bottoms and tops are always a process, never an event. Don’t believe anyone who’s trying to convince you otherwise. They’ll most likely gain something off of you.

Anyway, cryptos are in the middle of a process that could end up being the bottoming process.

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Shakeout before higher?

We’ve just seen a magnificent 20% two month rally in the S&P 500 index and stock market in general. Yesterday it opened just a bit above 2800, a target area discussed in What to expect next?. But then slid lower for the day and finished just a bit below 2800. Snap back rallies are very typical for bear markets and while the current bounce would constitute as a very typical one, the strength surprised even some bulls. What is a bit untypical is that until this point we haven’t seen any form of a shakeout yet (see more in Typical bottom).

The US markets were in a bear market in Q4 ’19 and some other markets were in a bear market for the good bit of 2018. While we might be seeing the first signs of the new bull market emerging (see Is it over?) we must not get overly excited at this stage. Does this mean we must be going to cash or even get short? No, not at all.

But we must respect a possibility of a quick and nasty shakeout, meaning we must respect risk and manage our positions accordingly. Even if we think the worst might be over, we could be proven wrong later.

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Trading workshop

I was relatively quiet in the past weeks, I didn’t post as frequently as I usually do. The main reason is that I was working on the content for a trading workshop. Many people close to me were asking me questions about trading and investing, like why would one do it, where to start and how to do it successfully. Instead of giving them brief answers to their questions I decided I’ll do it properly.

There was no other way than to post a bit less, there’s just no such thing as successful multitasking in my opinion. So in the past weeks I worked on putting all my knowledge and past experience together with a goal to educate future traders and investors. I prepared a massive slide pack full of theory accompanied by detailed examples and quotes where we dive deep into the following topics.

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What to expect next?

I’ve been very quiet in the past month. The reason is that I was intensively working on a new product I will announce in the near future. Sometimes you just got to lock yourself in a room if you want to get things done. Focus is so underestimated thing nowadays. It’s just impossible to deliver a high quality product if your mind is all over the place.

Anyway, more about that when time is right. I want to discuss the market with you. Since my post Is it over? the stocks rallied a lot and most have already forgotten we’ve seen a mini crash in Q4. However, the problem is that, while I think there’s a good chance the bottom is in, the current action does not look like a Typical bottom. So, what to expect next?

The market is behaving very constructive as of late and it’s not far fetched to say the S&P 500 could continue going higher to above of its 200d or up to somewhere 2,800 level – the purple area.

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Typical bottom

People love picking tops and bottoms. I understand where this comes from, some just have the urge to prove they know more, they know better. While this might be a viable strategy, one needs to know where the market is currently and if a low has a chance of becoming the bottom. Are we in a 8-12% consolidation phase, a 20-30% cyclical correction or a 35+% secular bear market?

We’re seeing a good 10% bounce from the Xmas lows and it’s easy to feel stupid if you dumped your stocks then but now watching the market go up without you. It’s also as easy to feel victorious if you didn’t sell then, but what if we get a retest, or worse, what if it’s not over yet? Can you withstand that?

I prepared a chart pack of 16 bottoms that occurred since 1962. They might help you navigate through the cycles and picking the bottoms. One very common characteristic in bear markets is that we often see a multiple double digit counter trend rallies, the same goes for rallies near market bottoms.

I bet you’ve heard the old saying that tops are a process and bottoms an event. The following charts prove that bottoms are a process too, even though sometimes shorter in length! There are no V type bottoms really, a much more common bottom is the one that fakes people in believing it’s not over yet, like a double bottom or a low undercut bottom or a bear trap bottom. Let’s go through them one by one.

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Dollar breaking down

I bet you found yourself being a bit early on the market on a few occasions. This can be very risky, because there’s a thin line between being early and being wrong. Having a sound risk management one can prevent losing (too much) money, however one must remember that there are two dimensions of a good trade, time and direction. If either of them is wrong, you risk losing money! Thus I don’t trade on my macro views until the tape confirms them.

I wrote a post Euro to repeat 2017 move? three months ago. Clearly I was early, but now it looks US dollar is finally breaking down, thus confirming euro and other currencies could appreciate versus the dollar.

Let me start with a monthly chart of Trade Weighted US Dollar Index of major currencies by FRED. The broad index looks more bullish too be fair, but it does not offer that much history, so below I will show you an equally weighted index against emerging market currencies too.

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Is it over?

I’m not one of the guys who like to scare others with a repeat of 2008 or 1929 crisis. I don’t think that’s very useful. In my mind this is one of the reasons why the working class stay under invested throughout the bull runs and usually buy the top. They’re too scared to buy until the peak euphoria comes when is already too late.

However, one must not be complacent. We need to respect risk, we need to respect the market, we need to use stop losses. This is why they were invented. And this is why in Q4 I was warning you we could see a correction in the market. If you didn’t pay attention you could be down as much as 40% if you were invested in Apple or even more, if you were invested in some of the other stocks.

Could we see a 2008/1929 style crisis? Absolutely, but I don’t think this is the highest likelihood event. I still believe we’re in a secular bull market and that this is a cyclical correction only, but I’m staying open minded to any outcome. Like I’m opened to a scenario that the worst is over and that the market will start a process of forming higher highs and higher lows.

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Commit to a process and stick to it

The start of a new year can mean a new beginning for some. Hope, resolutions, more hope. But a few are willing to do the right thing, this mostly means ditching hope and replacing it with work, solutions and processes.

The market doesn’t care what we hope for, a retirement plan, a new house, or a hot stock tip. The market is a redistribution machine. It transfers the money from many to a few. Trading and investing is not that much about stock picking than it is about risk management. 2018 was nothing like 2017. In 2017 most forgot about risk management, many didn’t use it, and they were handsomely rewarded for their complacency. But then 2018 came. It was the total opposite year. It was a tough year, especially for those who forgot what the term stop loss means.

I’m not mocking anyone. The same day I think I know more than others the market smacks me straight in the face. And I get humbled down. What I’m trying to achieve is to make you a bit more aware of the current situation. Have we seen the bottom yet? If not, are you ready for another leg lower? Can you take it? Will you handle it? Most complacent people who answered yes to the questions above will most likely sell the bottom.

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