Building Wealth Doc's note: Today, we're taking a break from our normal schedule.
Instead, I'm sharing an interview with Corey McLaughlin – editor of the Stansberry Digest – and Greg Diamond – editor of Ten Stock Trader. In it, they discuss Greg's strategy that gives him an advantage in the markets and Greg shares some of the most important investing lessons his learned from his career on Wall Street.
Corey McLaughlin: Let's get right into it, Greg... A lot of people hear the words "technical analysis" and aren't sure what to think. You're a pro at it. What should people know about what you do and how you approach the markets?
Greg Diamond: Simply put, my approach to the markets is based on price and time. Price and time are the essence of technical analysis. It's also important to understand that the approach is rooted in studying the cyclical and repetitive behavior of investors, which is expressed on a chart.
It could be that you're looking at a one-day chart of the S&P 500 or a 10-year chart of the Nasdaq Composite Index. But when you use technical analysis, what you're looking at in those charts is essentially human behavior patterns that have been proven over time in stock prices.
Corey: How and why did you find technical analysis?
Greg: I got started in technical analysis as a result of advice from my first boss. He trained under the legendary trader Paul Tudor Jones, and he told me that technical analysis was best suited for trading. My boss recommended I buy and read the now-famous Market Wizards book by Jack Schwager. Once I started diving into the subject, it immediately clicked with me.
What really got me hooked and what I love about technical analysis is a concept that I think a lot of people either overlook or don't want to admit. It's an excerpt from the Market Wizards book, from Paul Tudor Jones himself, where he says, "I always believe that prices move first and fundamentals come second."
While this statement seemed confusing to me at first, after 16 years of trading in almost every major market around the world, this concept of price moving first is why technical analysis is so important... and I can say Mr. Jones was and is spot on in his assessment of how markets move. I can't emphasize enough how important this is to understand for investors.
Corey: From what I understand, the great thing about what you do is that you can apply your analysis to anything, really... from a single stock to a sector or the big indexes, right?
Greg: I write about this often with Ten Stock Trader subscribers. You can look at a one-minute chart of a stock or a 100-year chart of a stock, and the analysis can be applied to both.
Short-term analysis leads to long-term analysis, but the concepts across price patterns and indicators stay the same. This allows you to home in on what your strengths are. Whether you trade 10 times a day or 10 times a year, technical analysis has something for everyone.
Corey: What advantage do you think technical analysis has over other brands of analysis?
Greg: There are essentially three brands of analysis – technical, fundamental, and quantitative or model driven. All three have pros and cons. While I won't cover each one, I'll answer your question as it relates to technical analysis...
A major advantage of technical analysis is that it is a trading strategy and a risk-management system wrapped into one. Based on the technical methods I use, the entry points can be defined as well as price targets on a rally or decline.
These methods also do a good job of letting you know not to trade at all. The combination of price, time, and certain indicators within technical analysis allows me to recognize historical patterns, which increases the probability of trading success.
This differs from a pure fundamental approach because you are not guessing what a company's earnings are going to be months ahead, nor what they are reported to be months prior.
Corey: On the flip side, what's a disadvantage?
Greg: A disadvantage is the same for all brands of analysis no matter which one you favor – there is no magic formula in this business.
Trust me, I've tried to find it...
If you take all three brands and combine them into a single trading or investing service run by all the best traders, investors, and computer models that have ever existed, you will still never have 100% accuracy on every trade for the existence of that system.
In other words, every brand has its fallacies... So whether you close your eyes and throw darts at a board to pick stocks, or run a quantitative model based on artificial intelligence, you better be sure to control your risk because every brand of analysis in the history of investing and trading is not perfect. I'm a stickler for risk management.
Corey: You worked for years on Wall Street before joining Stansberry Research... What did you learn, practically speaking, about trading early in your career? Any particularly memorable trading experiences or people you met or learned from?
Greg: Several things stick out with these questions...
First, what I learned is to never stop learning. I would say this is the most important aspect of trading for anyone reading this interview right now. Never get complacent when trading and always push yourself to learn more. I'm always researching and trying to learn something new to improve my craft...
I would say the ability to learn how to fight and never give up is also something I learned early on as well. I don't mean physically, I mean mentally. The market challenges you every day. If you let it, the market will easily defeat you.
Like I said, no one is 100% right all the time, so it takes an extreme amount of focus, dedication, hard work, and sometimes that still isn't enough. As traders and investors, we are dealing with the future and the unknown all day long – will the market go up or down? And how do we manage those scenarios?
I also learned very early on to have an open mind about what can happen – to not get sucked into being a perma-bull or perma-bear.
I'll also circle back to Paul Tudor Jones and his interview in Market Wizards. He noted, "Trading is very competitive, and you have to be able to handle getting your butt kicked. No matter how you cut it, there are enormous emotional ups and downs involved."
Trading is a battle. You are in the foxhole every day and better be ready. If you are careless or not focused, you won't last long...
I remember very early on as a junior trader on Wall Street, a senior trader lost $250,000 in less than 10 minutes. That trader never really recovered from a mental perspective – he couldn't handle big trades and was nervous from that moment on.
I knew right there that I wouldn't let that happen to me. Every trade I made, I made sure I was completely focused on the task at hand, whether it was a small trade or one that would move the entire market... As a result, I climbed the ladder very quickly at my fund. And before my 28th birthday, I was managing up to $900 million a day.
Corey: Why did you want to join Stansberry Research?
Greg: I was tired of the toxic environment on Wall Street by then, to put it nicely. I saw a unique environment while doing my due diligence on Stansberry – one that was open-minded and embraced all ideas and opinions from so many different backgrounds and skill sets, all while communicating directly with clients and subscribers, which was something you never got on Wall Street.
I knew instantly that in this new environment, my passion for the markets and wanting to help others was a perfect fit. I saw a tremendous opportunity.
Once I was offered the job, I took it immediately, and I'm so glad that I did. It's the best career decision I have ever made.
Editor's note: Greg called the 2020 crash to the week and the 2022 crash a day before it began. Now, he predicts the market will soon see a brutal move. If you know what's coming, you could double your money 10 different times, without buying a single stock.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
November 13, 2023