TEN IMPORTANT LESSONS

FOR CONFIDENT INVESTING

By: Trader Ed TraderPlanet.com

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 TEN IMPORTANT LESSONS
FOR CONFIDENT INVESTING

By Trader Ed

TraderPlanet.com

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 Introduction
Everyone has the brainpower to follow the stock market. If you made it
through fifth-grade math, you can do it.

My years of writing for TraderPlanet have been a course study on the market. Seven days a week I read about
the market, five days a week I observed it in action, and then each day I analyzed what I understood and
presented it to my readers. Interestingly, the market in the last seven years has been one of the most tumultuous
and volatile, certainly over the last 75 years.

Of all the lessons I have learned about the market, the one that has served me well is that you can grow your
money in the market, if you have reasonable expectations and a prudent, well defined plan. But, in order to
make the plan work, you have to recognize that achieving a reasonable return requires effort beyond just
signing up for a surefire newsletter that promises winning trades. Growing your money in the market requires
that you understand the market, understand how it works.

Despite what the financial industry experts tell you, understanding the market is not rocket science. In fact,
you will encounter many a well-educated economist who will predict market movement, and he or she will
summarize the deep analysis that delivered his or her prediction, but, as is often the case with market prediction,
the market just doesnt cooperate. To be clear, many of the top economists (as in those with the most celebrity)
often have polar-opposite positions about where the market is going, which makes the academic pursuit less
scientific and more artful when it comes to the market.

There seems to be some perverse human characteristic that likes to make easy things difficult.

As well, you will encounter really-rich hedge fund CEOs and over-sized TV personalities who will call for new
highs or an impending crash with confidence and bravado, or they will tell you with a straight face that oil is
going to $200, but you will soon learn they have no more a grip on the market than the non-credentialed person
who day-in and day-out studies the market. You will also learn they, like everyone else in the financial industry,
have an agenda.

The TV personalities want to sell you the show, and the hedge-fund CEO, or other top-flight money manager, is
trying to move the market in his or her direction, meaning, what they are telling you is how they have bet.

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Understanding the market is not rocket science, true, but it does require effort, a constant data-seeking effort.
You have to pay attention to the daily grind of news, absorb the constant dribble of economic-data, and reflect
upon the reality of the geopolitical flow. This is the broad-market context, and once understood, the effort then
shifts to a drill-down process.

First you analyze the broad market on a worldwide scale. You then need to be able to identify the global pieces
in play at any given time. Now, you have to figure out how those capricious pieces affect market movement.
Once you understand this, you then have to learn how the various sectors of the market move relative to the
broad-market movement.

At the sector level, you can then find specific markets that have a high probability of moving in the direction
of the broad market (or against it). Once you find those markets, success will come down to positioning your
money either as a trade (a time frame of weeks, perhaps) or as an investment (much longer time frame, but not
locked).

This e-book is not about how to position your money. Its purpose is to light the path leading to understanding
the market. What is contained herein, although not exhaustive, is important toward a goal of taking charge and
growing your money in the market.

In a nut shell, it is near impossible to grow your money in the market without understanding what the market is,
how it works, how to gauge its direction, and what dangers to avoid. Digesting the ten lessons in this e-book will
help you along this path.

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 What Is The Market?

One of the very nice things about investing in the stock market is that you learn about all
different aspects of the economy. Its your window into a very large world.

The market is a fickle creature indeed, so, if you expect any kind of consistency or commitment to stability,
forget it. Much like couples wrapped up in new love, the market is irrational, and, despite what the financial
industry would have you believe, it is unpredictable on a consistent basis, at least in a tight timeframe. This then
points to the first of the ten important market lessons.

Lesson #1: The Market R Us

No way around it, even with high-frequency trading, trade-seeking algorithms, and computer-based-trading
platforms for retail traders, the market is still all about the choices humans make. The upshot of that reality is that
humans are often irrational, always have been and, most likely, always will be. We program the computers to do
what we want them to do, and until such time as artificially-intelligent software takes over that responsibility, we
humans will continue to create market movement. And as long as we humans run the show, the market will be,
well, impulsive, for the most part, and predictions as to near-term market movement should be suspect.

This is not to say humans and market behavior are never rational, or predictable. One can look at the
important indicators (we will get to that in a bit) and reasonably forecast market movement over longer periods
of time, but in the near term, predicting market movement is like predicting the weather directly over your house.
One needs to analyze myriad variables all coming together in time to make a good guess, and, even then, you
could be off by a mile or two.

A meteorologist standing in front of a computerized weather map points to the massive

front moving toward California, and she tells her viewers with confidence that Central
California will see rain. Okay, fine, but will the small town of San Luis Obispo get rain,
and if so, will it actually rain on your house? After all, the town is nestled behind a small
mountainous ridge, and the wind coming in off the ocean blows differently because of Point
Concepcion, a large land mass jutting into the ocean, and that wind often meets the wind
blowing down the long Los Osos Valley, which then creates a wind turbulence zone that
pushes the lower rain clouds away from the north end of town where your house is located.

Sometimes, the weather front is so massive, everyone gets hit, but other times, your friend on the south
end of town complains about her flooded yard and you wonder why your house barely got wet. It is the same
with predicting market action. On a large scale, it is more predictable; on a small scale, one would have to be
able to analyze so many variables and then correctly predict how those variables interplay to consistently get it
right. Even computers cant get it right all the time.

In essence, this effort of everyone trying to predict market movement is what creates market volatility,
those often minor and sometimes major movements up or down that have the highly-educated economists
shaking their heads and mumbling to themselves, What went wrong with my precise calculations?

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 How Does The Market Work?

I dont know where the stock market is going, but I will say this, that if it continues higher, this will do more
to stimulate the economy than anything weve been talking about today or anything anybody else was talking
about.

The comment above comes from the mouth of no less than Alan Greenspan, one of the primary architects
behind the financial dissolution of 2008. Aside from that association, his point is well taken, even if he is an
economist with a spotty record of guiding the US financial system, and, thus, the market.

The market is a wondrous creation. It has the power to provide wealth for many, hence Greenspans
comment, but, and equally so, it has the power to take back everything it has provided, and it can do so brutally,
as we witnessed in 2008. Given this reality, it is best to know how this multi-faceted entity works.

Lesson #2: Ultimately, the Market Cares About One Thing

The market does not work in mysterious ways. There is nothing mystical or supernatural about it. No, the
market works on a set of fluid principles that drive the daily flow. The most elemental and powerful of these
principles include, but are not limited to:

a. The market is irrational.

b. The market is fearful.
c. The market is rational.
d. The market is not fearful.

Yes, it is as simple as that. And even though there are other principles upon which the market operates (I
will touch on those later), day in and day out, the market turns on one of the above states of mind. And here is
the really tricky part the market is fickle; it can change on a dime, and it does. Predicting market sentiment on
any given day is like, well, trying to time the market sometimes you get lucky, but mostly you strike out.

The reality is the Breathless Media (my pet name for the myriad news sources), the Talking Heads (the
TV personalities who talk, talk, talk saying little), and the Celebrity Analysts (economists, financial big wigs, and
other pedigreed peeps) with their incessant blathering often drive the daily movement (irrational), and that is
fine; it is what it is. However, it is not enough to just understand this. You must also understand that the market,
like humans, has certain basic needs, and those needs will ultimately marginalize the blathering and return the
market to a fundamental state of mind (rational). So, no matter the daily gyrations, the market will always return
to its three basic needs.

a. Making money.
b. Making money.
c. Making money.

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 And the primary way the market makes money is through the many trillions of investment dollars ( Big
Money ) that flow in and flow out as the market trends up and down. Traders trade daily to make money, and the
market gyrates from that, but Big Money is the ultimate stabilizing force and when you get right down to it, Big
Money is about one thing and one thing only corporate profit.

Now, just so you know, Big Money includes Government and Corporate Pension Funds ($40 trillion),
Mutual Funds ($35 trillion), and Wealth-Management Firms ($20 trillion), as well as some other large financial
institutions. All of this money flows in and out of the market on an irregular but methodical basis. The folks who
manage the Big Money buy and sell, but they are not traders, per se. Short-term profit is not their game. Return
on investment (ROI) over time is what they are after.

The Big Money managers move money about to maximize ROI for their clients with one eye on risk. This is
not to say they dont take risks; they do because they have to in order to make decent returns for their clients.
Unlike hedge funds that take big risks to make big returns (risk/reward), the risks the Big Money managers take
are calculated with their other eye on making a decent ROI for their clients. This mindset creates a somewhat
conservative approach to the market.

In the parlance of the financial industry, the market looks 6-9 months out on a daily basis, and the reason
this maxim exists is that Big Money does not care about what happened; it cares about what will happen and,
generally, it cares long term.

This does not mean Big Money will not panic when the Middle East bursts into flames, or a megalomaniac
drives unrest in Eastern Europe, or the Breathless Media is hyping the latest dire news. It does panic and
spectacularly so. Just think back to the fall of 2008 and the winter of 2009.

Keep in mind, the panics could be trading opportunities, if you understand the market will return sooner
rather than later to its basic need to make money. An excellent example of this is May 2009. After the panic of
the US/global-financial meltdown subsided, Big Money looked around and saw the full weight of the US money-
pump go into action and the economic future some 6-9 months out started to look much, much better. Big
Money was right back then, as it usually is.

The news comes and goes, but underneath that constant current is an important market principle
economic fundamentals matter.

Lesson #3: Economic Fundamentals Matter, In the Long Term

The reason economic fundamentals matter is that they drive corporate profit. This sublime relationship
points to another important market principle consumers drive economic fundamentals. Ergo, if consumers are
spending money, corporations are making money, and if corporations are making money, Big Money is making
money for its clients, and if Big Money is making money for its clients, it wants to keep the ROI coming, so the
sure bet is the market is trending up.

As long as the economic fundamentals are stable or improving, and the 6-9 month outlook is positive, as it
was in May 2009, it is likely the market will trend up, no matter what the Breathless Media is selling. Within that
trend, though, there will be mild ups and downs mixed with an occasional bout of extreme volatility that might
throw you for a loop.

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 Remember the late summer of 2011 when the ideologues in Congress took the government to the brink
over the US debt? That brush with stupidity and the ensuing panic turned out to be a rather large opportunity
to get into a market that was knocked down but would soon return to the fundamentals and resume its upward
trend.

No matter the reason, and we have heard them all, corporations were reporting profits and growth quarter
after quarter right through late 2009, 2010, 2011, 2012, 2013, and on and on. The market kept on going up
because economic fundamentals matter, and, more importantly, corporate profit is the primary concern of Big
Money. When corporations make money, the market goes up.

So, over time, if you want to grow your money in the market, one proven strategy is to buy the dips and
sell the rips.

Lesson #4: Technical Analysis Matters, In the Short Term

In the shorter term, the Breathless Media drives market movement, but when the fear subsides, the
economic fundamentals take over; however, when the market is in a tizzy, you should be paying less attention
to the economic fundamentals and more attention to technical analysis, if you want to understand where the
market is going near term. Technical analysts are the folks who use charts and patterns to forecast market
movement, and they have little need for the economic fundamentals.

Often, when the market is freaking out, it is technical analysis that moves the market, and quickly so, as it
cares little about the fundamentals, the news, the Talking Heads, or the celebrity analysts. The traders who rely
solely on technical analysis care about one thing and one thing only the chart.

The interesting thing about technical analysis is that it can create its own outcome. Some call this
phenomenon a self-fulfilling prophecy. Simply, the market, like the Universe, abhors a vacuum. Like vultures
circling above, professional traders watch and wait for Big Money to panic (creating the vacuum as it quickly
moves money out) and when it does panic, professional traders swoop in with their charts and take over. The
economic fundamentals matter not. The charts predict, and since the Big Money is sidelined, professional
traders fulfill the chart predictions in the short term.

The market works on basic principles and both professional traders and Big Money have their own subsets
of principles which drive their actions and reactions to the myriad influences on the market. In the end, however,
the market (and the specific markets within) moves daily on news-driven sentiment, and this allows professional
traders to do their thing, but the longer-term trending is what Big Money looks for, and longer-term view is what
allows everyone else to make money. Hence, another maxim in the market follow the money. Make that, follow
the Big Money.

Lesson #5: Fear Not the Correction

Okay, so here is yet another maxim to consider if you want to understand the market the trend is your
friend, a small rhyme that carries big meaning, especially when the market corrects, which it will do from time to
time. Correction is part of the market cycle, which brings me to another market principle the market is always
seeking balance.

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 This principle is important to incorporate into your financial psyche, and I will help you with that in a
moment, but first it is important that you understand in the financial world there is a precise definition for a
market correction. According to Investopedia, a market correction is:

A reverse movement, usually negative, of at least 10% in a stock, bond,

commodity or index to adjust for an overvaluation. Corrections are generally
temporary price declines interrupting an uptrend in the market or an asset.

I get it that we humans have to define things, but like so much in the financial industry, defining a market
correction as a clear percentage complicates what is otherwise a simple thing.

Simply, when the market perceives it is out of balance, it corrects to whatever degree it needs and for as
long as it needs. It tries to find its proper level. It might take some time and effort, but it will find balance, and
when it does, if the economic fundamentals are pointing forward, the market will resume its upward trend.

Understand, there is a difference between the market gyrations professional traders create when they fill
the vacuum left when Big Money panics, and an actual correction that is prompted when the market perceives
itself out of balance. The latter happens when the market is looking at the fundamentals of the market itself.

If, for example, the price to earnings ratio (P/E) of the S&P 500 is above the norm for the market in an
uptrend, it is likely the market will adjust itself to bring that imbalance back into balance. Now, it might do this a
bit at a time, or it might do it all at once. The former is much of the up and down movement we see in an uptrend
market and the latter is what we might see if Big Money is convinced too large a bubble is forming. The reason it
goes all at once is Big Money panics when it perceives a sell-off is happening because the bubble is bursting.

Just as the technicians have their self-fulfilling prophecy, so do the fundamentalists. It can quickly become a
mad scramble for the door when perception replaces reality, yet another lesson I will get to in the section below,
What Dangers to Avoid.

For now, understand that corrections are a natural and expected aspect to market reality. Sometimes,
they come in small and bitter doses and, at other times, the correction is akin to radical surgery. Either way, both
can be opportunities to make your money grow in the market.

Understanding the market is the key to knowing when a correction is a small, medicinal dose or a major
surgery, which is what all this writing is about. If you do have a handle on understanding the market, then you
will also have a handle on when to sell and when to buy, and vice versa.

You get recessions, you have stock market declines. If you dont understand thats going to
happen, then youre not ready, you wont do well in the markets.

So, when you are ready to buy and sell, sell and buy, then you need to know what to look for as signs to
pull the trigger, which moves us forward to lessons six and seven.

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 How to Gauge the Market

Sign, sign, everywhere a sign,

Blockin out the scenery, breakin my mind.
Do this, dont do that, cant you read the sign?

The above ancient lyrics just appeared as this section began formulating. I could be the only one on the
planet who would correlate those one-hit wonder words to a market lesson. Even if they are just a tad off,
though, the message is right if you want to know when to move your money, you need to know the signs of a
market wanting to change course for whatever reason.

Certainly, in the large universe of market indicators, both fundamental and technical, there are signs to
watch for a market change. To make searching for the proverbial needle in a haystack easier, lets divide the
huge pile of this and that into two smaller piles of this and that lagging and leading indicators.

Lesson #6: Lagging Indicators Get You Nowhere

The major economic indicators in the market are primarily lagging and they are what give the Breathless
Media life. They are the everyday swallow of air the Breathless Media needs to keep it alive until the next
geopolitical crisis arises, the next market boogeyman comes out from under the bed, or the next hilltop
screamer du jour preaches the coming financial apocalypse.

Lagging indicators, by definition, reference the past, and since understanding the market means
understanding that Big Money looks forward 6-9 months, one has to wonder, why bother with lagging indicators
at all?

In the business world, the rearview mirror is always clearer than the windshield.

Specifically, my reference here is to fundamental economic indicators, not technical indicators. There are
many lagging technical indicators of importance, and when your education takes you there, you can learn and
utilize them, but this e-book is not concerned with those, as it is focused on growing your money over the longer
term, rather than the shorter term period of volatility that traders desire.

This means the fundamental economic indicators are of importance, and in that realm, it is the lagging
indicators that get you nowhere over the longer term. In fact, lagging economic indicators can lead you astray
if you pay attention to them incorrectly, and this is the reason I discuss lagging economic indicators here rather
than in the What Dangers to Avoid section, which we will arrive at shortly. There is value in tracking them, but
the value is not in the high or low numbers; it is in the context of the trend the numbers provide.

Simply, incorrectly paying attention to lagging economic data means thinking that Big Money cares about
them in the present. It does not. Big Money only cares about lagging economic data as it relates to the future,
meaning, Big Money looks for trends in the economic data so it can forecast 6-9 months out. As long as the
trend is forward and positive, and there are no obvious calamities on the way, Big Money will continue investing
money in the market, and so should you.

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 Thus, when the Breathless Media hypes the small drop in GDP for the last quarter and the factors that
caused the slight demise are clearly not trending, you should smile and look for opportunity if and when the
market reacts, as it does almost daily when the news is reported.

As well, when the financial media hammers the weekly unemployment news, pounds the monthly
wholesale inventory numbers, or sensationalizes the quarterly manufacturing data, just let it go by. The
importance of the data is not in the actual numbers; rather, the importance is in the context. Do the numbers
negate the longer-term trend (up or down)? Significance is also found in watching how the market reacts to the
data.

Sometimes, depending on the context, the market will correct slightly, which is a buying opportunity. Other
times, it will blow the data off, which is a sign that the market is bent on going up, which is a buy signal. Often,
though, when the market acts benignly toward the data, it is waiting for more important indicators to pop up,
which leads us nicely to discussing the important leading economic indicators, number seven in the hit parade
of important lessons on how to grow your money in the market.

Lesson #7: Leading Indicators Get You Everywhere

My writing desire is to reduce the complex to the simple whenever possible, so, by definition, leading
economic indicators point to the future, not the past. Okay, even I get that is not enough to truly help you
understand the market better. How about this?

Since the economic fundamentals drive market movement long term,

look to the indicators that drive the economic fundamentals.

There are many, for sure, but of the many, there are a few truly key indicators that tell most of the story,
if not all of the story about the economic future, and, thus, the market future. Of those, the most important is
consumer confidence.

Before laying out my thoughts on consumer confidence, and its power as a leading indicator, I do want
to remind you there are solid leading indicators found in the technical analysis world, but this e-book will only
reference them, not focus on them.

Consumer Confidence

Consumer confidence is by far the most important leading indicator in the economic realm. Given that
some 70% of the US GDP (and global GDP) is created from consumer spending, and the US economy is by far
the largest on the planet, it is no small deal when US consumers feel good or feel bad. In fact, it is paramount to
both understanding the market and to staying in the trend.

For example, if you were to track consumer confidence from 2009 through 2015, you would see that it
preceded the upward trend in those years. A clear illustration of this is what happened in the summer of 2011.

Consumers feared in the summer of 2011 that the ideological Republicans in Congress would carry out the
threat to shut down the government over the US debt issue, so in late July, consumer confidence took a big
dive, dropping from 70.1 on July 1 to a low of 55.8 in late September.

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 It wasnt until October 1st that consumer confidence began to rise, precisely 15 days before the sixteen-day
shutdown ended. Consumers understood then the Republicans would lose the battle; the effort to not renew the
debt ceiling was doomed.

The market popped through October, rolled back in November (Big Money out, traders in), and then
trended up right through the end of the year and into July 2012, after a brief correction in April and May of that
same year.

My point is if consumers are confident, they spend money, and that is the most powerful driver of the US
economy.

Consumers are the pulse of the US economy and to have your finger on the pulse of the US economy is
not a bad thing, if you want to make your money grow in the market. By the way, this same principle is at work in
virtually every economy on the planet. Just sayin.

Housing Starts

Housing starts are the number of individuals and businesses signing up for permits to build homes and
buildings in the future. Simply, if this number is growing, you should take it as a sign the market will grow as well.
Building homes and commercial buildings has a powerful rippling effect on the economy. Not only are heaps
of constructions jobs created, but there are jobs created in manufacturing and selling the materials needed to
build, as well as jobs created in manufacturing and selling the products to fill the buildings, you know, beds,
refrigerators, office chairs, TVs, desks, computer systems, and the list goes on and on.

Business Spending

Business spending is investment in the future. Operating a business is a fiscally conservative enterprise.
If business spending is up, business is making a bet the future is brighter than the present. Like the market,
business looks to the future, although the time horizon for business spending is generally in years, not 6-9
months. Nevertheless, in the 6-9 month timeframe of the market, business spending is a fine leading indicator
indeed.

Auto Sales Projections

Few industries have their finger on the pulse of consumers more tightly than the auto industry. As one of
the oldest American industries to mass produce and mass sell an expensive product, it has a long history of
understanding the desires of American consumers.

As well, America moves on wheels. We love our cars, and the auto industry understands this, so keeping
abreast of how many cars Americans will want (and can afford) is paramount. Knowing how many cars to
manufacture for a given year is an art based on clarity of understanding the needs and desires of the American
driver.

Simply, manufacturers dont want to overproduce, say, 3-million expensive cars in an industry that sells
15-million (more or less) cars a year in the USA. You bet. This data is a leading indicator.

Preorders For Large-ticket Items

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 Manufacturing isnt what it used to be in the USA. Prior to 1980, manufacturing comprised some 30-
40% of US GDP, but today that number is roughly 17%, and as of 2010, China overtook the US as the number
one manufacturer on the planet. This all sounds bad, but here is the reality. As the worlds second largest
manufacturer, the US represents a fifth of the global manufacturing output ($2 trillion, more or less). This means
jobs, plenty of manufacturing jobs. When manufacturing is doing well, consumers have more money to spend.

Specifically, when manufacturers of large-ticket items (long shelf life, so to speak), such as the
aforementioned cars and building materials, as well as major appliances, TVs, and jets, are projecting increases
in future orders, that is a good sign for the economy and the market. When Boeing announces it just received
$30 billion in jumbo jet orders, take it as a good sign...

Oil Prices

The plunge in oil prices beginning in November 2014 (some 50-60%) began a stimulus program the
government can only dream about. For every $1 drop in gasoline prices at the pump, the windfall to US
consumers is roughly $350 million per day. So, keeping an eye on the price of oil, as well as the global oil
industry itself is smart business when it comes to growing your money in the market.

Simply (as I see most everything), high gasoline prices have a dampening effect on consumer spending.
Appreciably lower prices, however, allows for more spending, as consumers have more discretionary income.

When the price of gas drops suddenly, as opposed to gradually, the relief from high gas prices has a
psychological affect that compounds the increase in discretionary income. The relief factor energizes the
desire to spend, to make up for lost time, so to speak. The reverse is true as well.

To gauge where oil prices might go, you need to track the International Energy Agency (IEA) stats on
inventory and use. Supply is a big ingredient in price, as is demand, but more important than either is perception.

In the oil industry, speculation is rampant, right up there with speculation in gold. Big trading dollars go in
and out of oil in a flash, so the price is volatile. Having a handle on supply and demand factors helps you see
whether the latest rise or the latest drop in price is real. Simply, if the demand exceeds the supply, the price
drops (and vice versa), so if you see a price jump (or drop) in this reality, chalk it up to speculators making big
bets oil prices will go the other way in the near future.

Keep in mind, many a really smart person who knows the oil industry well has lost billions making wrong
guesses. Tip: Stick with the fundamentals when trying to gauge the price of oil.

Now, if you truly want to know what will happen with oil prices, stay on top of OPEC news. For example, in
the late winter of 2015, Ali Al-Naimi, the Saudi Arabian Oil Minister, gave a speech in which he flat out stated that
oil prices would remain low for two reasons.

First, the upstart American producers were stealing market share from OPEC, and so the Saudis would
up oil production to drive the price down to keep their market share, even if that meant adding to a global
glut of oil. The idea was that American oil producers could not effectively compete at the lower price range.

Second, oil prices needed to remain low to slow down the advancement of alternative energy
production. Simply, the higher the price of oil, the faster the transformation takes place. Yes, he really said
this.

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 Yes, it is important to follow OPEC news to track oil prices.

Gold

Less important than oil, this yellow commodity has something to say about perception and reality in the
market.

Gold is seen as a safe haven in times of great fear. In 2008, for example, many an investor flocked to gold
as a hedge or an outright investment. Back then, the really smart people were telling the world that gold would
go to $5,000 per ounce. Oops!

In fact, it never reached $2,000 an ounce, and it only got that far because of its reputation as a safe
haven in times of great fear. The thing about gold as a leading indicator is that if it is rising fast that is a sign the
market is fearful. Gold then becomes a barometer that tells you when dips and rips might be coming, as it works
the other way as well. If the price of gold is dropping or the price is stable, then Big Money is not only content to
stay in the game, but it might well be in a buying mood.

CBOE Market Volatility Index (VIX)

The Volatility Index (VIX) works the same way as gold. It too is a barometer of fear in the market. When it is
dropping, Big Money is happy and willing to get into the market. Usually, 13-15 is a nice range for stability. If it is
lower than that, no big worries, but if it gets higher than that, especially if it rises above 20, then that is a signal
to consider selling and waiting for the next market rise, which will happen when the VIX starts declining again.
When that happens, you should start looking for opportunity in the market.

The Russell 2000 (Small Cap) Index (RUT)

When Big Money sees less growth opportunity in the large- and middle-cap areas of the market, it begins
to speculate more in the small-cap zone. When the RUT is rising, or it is remaining fairly stable, this is a sign Big
Money is still in the game, although a bit extended. Generally, if the RUT is rising fast, relative to the large- and
middle-cap areas, then that is a sign to think about repositioning your money.

Suffice it to say you can grow your money fast in the small-cap arena, but there is certainly more risk.

The S&P 500 Price to Earnings Ratio (P/E)

This number is one more barometer defining a level of interest in the market, and it directly correlates with
corporate earnings, which, as stated, are the ultimate focus of Big Money. If the P/E rises too high above the
historical norm, then expect the Breathless Media to put this front and center in the news, and then expect a
market change, as Big Money will certainly reposition. What is too high above the norm? The only way you will
know this is to you guessed it follow the Big Money.

Technical Leading Indicators

Leading technical indicators as a group should not be overlooked as a tool to help you grow your money,
but the fact is that the best leading technical indicators are found in the best analytical software, software

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that relies on the latest in computer technology and market theory, such as those that utilize heuristics, neural
networks, and intermarket analysis.

Simply, markets cannot be analyzed in isolation. In todays highly interactive global market, markets affect
markets daily based on a wide variety of variables. Thus, software that can, on a daily basis, with the aid of
heuristics and neural networks, compute the many variable affectations on a single market (intermarket analysis)
is likely to have the highest probability of producing leading technical indicators that can fairly accurately
predict market movement in very short time frames, say two days.

Utilizing this software can be a solid advantage, but to get the highest and best use of the software, you
truly have to master understanding the market. And to do that, you need to learn the lessons above, but you
also need to know what to dangers to avoid, which brings us to the final three lessons in this e-book.

What Dangers to Avoid

If stock market experts were so expert, they would be buying stock, not selling
advice.

There are times when I watch the market and shake my head in disbelief. Why is the market behaving this
way, I think. Cant it see past the Breathless Media?

Well, to be candid, when I think this way, I have forgotten Lesson 1 The Market R Us. It behaves crazy
some days because it can be irrational. So when it is behaving this way, and you are flummoxed, just remember,
often in the market, perception is not reality.

Lesson #8: Often In the Market, Perception Is Not Reality

One of the most important lessons you can learn about the market is that perception is not reality. So much
of what happens on the surface in the market is the market perceiving something to be reality, meaning, the
Breathless Media sells the conflicting messages of the oversized TV personalities, the celebrity analysts, and the
hilltop screamers, and the market buys those messages, which can breed confusion, ultimately leading to the
aforementioned vacuum and the whole vultures swooping in thing.

And there is always something the Breathless Media is selling. If it is not the continual disintegration of
the second largest economy on the planet (China is a favorite of the talking-head circuit), it was the collapse of
the stock market when the Fed ended its Quantitative Easing (QE) program in December 2014. Despite all the
predictions about how that act would correct the market, the market instead rose to record highs at the end of
2014 and into 2015.

In 2015, the imminence of the Fed raising interest rates was a big hit with the Breathless Media, as was the
much ballyhooed Grexit, Greece leaving the Eurozone. In 2014, Putin covertly invading Ukraine was a big hit,
as was another goodie, the Houthi rebels potentially blocking the Gulf of Aden to choke off Saudi oil.

The above are just a few of the many fears pedaled in the last few years, and each caused gyrations
in the market, yet, interestingly, not one of them halted the ultimate advance of the market. They did not stop

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the forward market movement because of one important and basic thing corporate profit kept pace with the
upward trend.

Soon enough, though, the reality of corporate profit remaining steady was displaced with a perception
that the market would correct because the P/E ratio of the S&P 500 in late 2014 and into 2015 was higher than
the historical norm. The talking head circuit and the Breathless Media pedaled this perception incessantly for a
while, and the market gyrated, but, in the end, Big Money stepped back in to settle the issue the upward trend
continued. Reality replaced perception, as it ultimately will when perception has overshadowed reality.

When the Breathless Media hammers these stories and the analytic elite tells us these are the reasons the
market is in a tizzy, Big Money sidelines itself as the fundamentals are no longer a factor in market movement
(at least not when the market is beside itself with angst), and traders swoop in and the market exacerbates its
tizziness. It is so irrational it is hard to even find words to explain it rationally. Sometimes, the market perceives a
reality that is not real.

I think that says it, but I do want to add this the market will gyrate, spin, and flip over backwards with
trading when it perceives trouble is at hand. Always keep in mind the stabilizing force of the market is Big
Money, and Big Money follows the economic fundamentals. When those are sound and improving, the market
will find balance when it burns out on the fiery spin of the Breathless Media and its minions on the talking-head
circuit. When this happens, it is often said The bad news is now baked into the cake.

The Breathless Media creating negative perceptions in the market is an integral and important part of
market reality. As frustrating as it can be, it is also the opening for opportunity to enter. When the Breathless
Media is on a negative tear, Big Money retreats a bit (wisely so), which allows the traders to step in, and that
creates the perception the market is falling apart, which it generally is not when the economic fundamentals are
positive. In this state, buying is a good idea. That is not a perception; it is reality.

Lesson #9: Pay Attention to the Breathless Media, But

Much of what I will now say has been said in one form or another here and there in this e-book, yet,
and even so, there is still more I can explain about why the Breathless Media is such an important factor in
understanding market movement.

Perhaps the most important thing I can say about the Breathless Media is that it has an agenda to make
money. Yes, the news media is a capitalistic endeavor driven, ironically, by corporate profit. It is ironic because
as the news media is fulfilling its agenda of making money, it is working against the very market that will provide
a context for whether or not stock prices rise or fall.

Now, let me say a good thing about the media there are more than a few excellent news sources,
reasonable and thoughtful Talking Heads, and enlightening financial wizards who deliver good information,
insight, and, yes, brilliant thoughts about the future of the market.

The problem is the good of the media is swamped by the fiduciary need of the media to sell the news.
Frankly, bad news sells better than good, and controversy stirs sales. And sometimes, and this is way past
amazing me, certain elements of the media will actually speculate, if they have no facts for the story they are
reporting.

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 As to the Talking Heads, these folks are the front men and women for the Breathless Media, and sometimes
they are smart, and sometimes they are just pretty faces on the screen seeming not to possess much upstairs.
Whatever the reality, it is important to understand they add little to the true conversation, as they most likely are
there to repeat the company line to get their ratings up, and they create controversy to keep their ratings up.

As to their guests, the CEOs, the money managers, and the financial analysts from powerhouse banking
interests, ask yourself this: Why are they on TV telling the world what they think about the market? Are they
good Samaritans out there doing good things, or do they have another motive?

Often, these folks have a lot on the line when they make bets in the market, so any chance they can get to
persuade others to see things the way they want them to go is, at least to these eyes, an opportunity to move
things in their direction. These folks have large audiences with lots of investing/trading power.

In the end, find the good talking heads, the ones you feel are honestly speaking to the reality of the
market, not the current perception. There are a few out there, like diamonds in the ruff, folks who care little for
entertaining you or selling you something and more about informing and educating you. When you find these
gems, listen and then add what they say to your own thoughts, as blending thoughts from thoughtful thinking is
a good thing.

Lesson #10: Smart People Cant Predict Any Better Than You
In the category of smart people I put the whole industry of financial economists and a good portion of the
industry of money managers assigned the task of making lots more money for people who already have lots of
money.

Simply, having a financial pedigree or a list of letters behind ones name does not mean one is necessarily
any better at predicting future market movement than you, that is the you who understands the market and
how it works.

The financial markets are littered with forecasters, most with either an outwardly bullish
(optimistic) or bearish (pessimistic) bias. Most of them missed the financial crisis when
it hit by being too bullish, and some have been too bearish since, worrying that another
systemic collapse is around the corner when in fact equity markets, at least, continue to
zoom to new highs.

There are countless examples of this truth since just 2009, but none are more illustrative than Dr. Nouriel
Roubini and Meredith Whitney. The first represents the economists and the second stands for the money
managers of the wealthy.

First, give credit where credit is due. Both Dr. Roubini and Ms. Whitney had their finger on a particular
aspect of the coming 2008 financial crisis prior to 2008, and each clearly spelled out the pending disaster. Dr.
Roubini spoke to the housing collapse and Ms. Whitney spoke to the banking collapse. Each was spot-on in their
analysis and prediction.

And herein lies the problem. I applaud them for their economic and financial insight and their willingness to
persevere in their warnings, but, that said, I also chastise them for taking that analytical success and parlaying
it into celebrity status. Once that happened, like a professional athlete achieving a record milestone, the world
wanted more from them, and they felt compelled to deliver, no matter the cost.

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 After Ms. Whitneys analysis of Citibanks finances and her warnings about the coming banking collapse
that came true, she became a star, and as such, she then felt compelled to deliver another blockbuster
prediction.

On December 19, 2010, in an interview on the CBS program 60 Minutes, Whitney

stated that between fifty and a hundred counties, cities, and towns in the United
States would have significant municipal bond defaults, totaling hundreds of
billions of dollars in losses, and that itll be something to worry about within the
next 12 months.

True, some cities did default (Detroit, Stockton to name two biggies), but the total has yet to even come
close to hundreds of billions of dollars. My point here, as it relates to understanding the market is this: The
Breathless Media provided forums for Ms. Whitney to promote her prediction for at least two more years until,
finally, she fell from grace because she continued to insist on something that had not and would not materialize.

In that time, more than a few folks acted on her advice and got out of municipal bonds, and many others
decided not to get in, which raised the cost of debt to the cities and counties she predicted would collapse from
debt. Furthermore, those who exited that market lost money as the bonds paid off nicely, and those who ignored
her advice, made plenty of money with the higher yields she helped create.

As to Dr. Roubini, well, he has suffered the same fate. After he too rose to stardom for correctly predicting
the 2008 housing collapse in 2006, and then continued to insist for several years after 2009 there was a
pending economic collapse coming that would bust the stock market, the Breathless Media eventually assigned
him a somewhat insulting moniker Dr. Doom.

May 19, 2011: Okay, this has become as easy as hitting the side of a barn with a
baseball. Now, more than two years later, Roubinis predictions made late in the
financial crisis couldnt be looking much worse. More importantly, any investors
who followed his advice have taken a bath. Since he stated that stocks were
engaging in a suckers rally, U.S. and global stock prices have doubled!

The takeaway from this is Celebrity Analysts, such as Dr. Roubini and Ms. Whitney are smart people, no
doubt about it. Their problem is they get stuck in celebrity and that means to keep that status, to keep the
interviews going and the money flowing in, they have to speak, and that speaking has to contain sizzling content
or they lose their prime TV spots and coveted column space, and, as Ms. Whitney did, her clients.

What you need to understand is that for your purpose of growing your money in the market, Celebrity
Analysts are not helpful. Learning how the market works and paying attention to it weekly, at the very least,
will give you way more insight and ability to forecast market movement than anything the Talking Heads and
Celebrity Analysts will give you.

Aside from that, there will be recessions, and there will be huge setbacks for the market. What you need
to understand if you embark on this business of growing your money in the market is, well, read the words of
Warren Buffet, a man far more successful at that endeavor than just about anyone else on the planet is or has
ever been.

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 In the 20th century, the United States endured two world wars and other
traumatic and expensive military conflicts; the Depression; a dozen or so
recessions and financial panics; oil shocks; a flu epidemic; and the resignation of
a disgraced president. Yet the Dow rose from 66 to 11,497.

Finally, you will come across the folk I call Hilltop Screamers. They are members of the doom and gloom
crowd, and, for some reason, they just cannot get behind the reality of the market. Actually, I know the reason
ideology.

Their pitch about the apocalypse comes from a place other than reality unyielding belief in a wrong idea
and their pitch is always the same the US and global economy is doomed because of too much debt and too
much government interference in the free market system.

In short, the history of capitalism and the free market system is replete with facts that demonstrate:

1. Government and private debt is the underlying foundation for capitalism, and;
2. There is no such thing as a free market. The idea is pure mythology.

The powerful have always governed the money, and, in the last 250 years or so, powerful democratic
governments have done most of the governing, and they are only different in that they have fostered market
growth with tax breaks and outright financial support, nurtured innovation with grants, education, and research
data compiled at government expense, and nursed back to health the very entities that create and distribute the
debt, i.e., the global banking system that almost collapsed in 1933, 1989, and 2008 most recently (to name just
three examples). The US and other freely elected governments around the globe have done this for 250 years,
and that is just the way it is.

The passage into U.S. law on October 3, 2008, of the $700 billion financial-sector rescue plan is the latest
in the long history of U.S. government bailouts that go back to the Panic of 1792, when the federal government
bailed out the 13 United States, which were over-burdened by their debt from the Revolutionary War.

The Hilltop Screamers have been ranting since 2009 that because governments around the world pumped
up the banks with government debt, thereby saving the global economy from collapse, the global economy will
collapse. Go ahead, try to figure out that logic.

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 Conclusion

What is contained in this short e-book is by no means comprehensive regarding a complete education on
the market. To truly understand the market could take years, or it could happen relatively quickly, depending on
the commitment you make to learn what needs to be learned. In either case, it does take effort and willingness
to take on the task. It also takes desire.

You have to want to know, and if you dont have that, then find the best financial advisor you can and learn
enough about the market to converse with that person on a regular basis, if for no other reason than to show
that person you care about your money. If the financial advisor knows you are paying attention, then you have a
good shot at getting a decent ROI.

So, no matter how deeply you get involved in growing your money in the market, the lessons in this e-book
should be incorporated to a degree into your education. I have seen the principles underlying them at work in
the market for over ten years and, as a general truth, they consistently perform reliably when looking to future
market movement. True, the Market R Us, and that makes it unreliable in the short term, but over the longer
term, I stand by my statement.

Thanks for hanging in there with me as I laid out my thoughts on the market arrived at after years of
studying it. I can always write more, and I will, but for now, I will leave you with the following five points to keep
in mind as you walk down the road of learning how to grow your money in the market.

Listen to others, but warily so. Take in the good, ignore the bad.
Devour the data, but place it in the proper context leading or lagging.
Analyze on your own, but incorporate analysis from those you trust.
Be confident in what you know, but understand you will make mistakes.
You only have to be right more than you are wrong, assuming all bets are equal.

Good luck and remember

Trade in the day; invest in your life.

-Trader Ed

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