How to Gain Insider Info w/out Insider Info
Access "inside info" to gain an edge, without communicating to anyone.
A major goal of this newsletter is to make you independent in thought when it comes to financial markets.
Having knowledge and a thorough understanding of how markets work is my objective. The gap between rags and riches is always filled with knowledge.
That’s why I write this newsletter. And I’m stressing it for this post, because I want you to really understand something that will take you far in stocks.
What I’m about to share will give you the edge you need over most investors in the market, and the best part is, you won’t have to be like this guy:
First, a quick recap…
In my June 22nd newsletter, I noted how oil looked like it was headed for a collapse, but all the news articles were very positive. Think about that for a second. The charts were telling me one thing, but the news was telling me another.
Since then, oil down about 7%, and the headlines are just now turning negative (USO )
In my June 26th newsletter, I noticed natural gas was looking very “toppy”. Since then, it’s down 10% ( UNG ).
A few days later, I noticed major energy stocks were confirming what I saw in energy: a price collapse.
Today was ugly for energy leaders, as they added to their major losses:
Big Cap leader Exxon Mobil (XOM )
Growth leader Earthstone Energy (ESTE )
Did I have insider information? Not as we understand the term generally. No one at any company or ETF or commodities trading firm told me anything. So how did I know this move was coming? I got insider information from the PRICE action:
Here’s a video of what I saw at the time of my oil call. No, I didn’t have insider info, but I had info that gave me an edge as if I had insider info…
How to Get Inside Info (Without Getting Inside Info)
Want to get insider information, so you can get into a stock or ETF before everyone else does? Well you can do it totally legal, without any insider information, and without talking to anyone.
The answer is Japanese Candlesticks, which date back to the 18th century rice markets in Japan. They’re very powerful. That’s why I always talk about them; because I want you to benefit from them the same way I have.
Japanese Candlesticks represent — graphically — the relevant price points needed to know what’s really happening: the high, the low, the open of the day, and the closing price. Nothing else matters. All analyses, opinions, ideas, opportunities, etc. are all reflected in price. Period. Price is hard to predict, but…
Sometimes, the pattern that emerges in the price structure gives us a really good idea of what is likely to happen next. That’s all the insider information you need. And it’s all rooted in human psychology, which hasn’t changed for hundreds of years.
Use 18th Century Japanese Candlesticks
Tops and bottoms in financial markets are a result of a vacuum of buyers or sellers. When there aren’t any buyers left in the market, price will vacuum in the sellers. Similarly, when there aren’t any sellers left in the market, price will vacuum in the buyers.
When that happens, price — graphically by way of Candlesticks — shows up in a handful of ways. The two most powerful are:
An engulfing pattern, where the price action of the period completely engulfs the period before. Examples include Bullish Engulfings and Bearish Engulfings.
Pintop patterns, what I like to refer to as intraday reversals, where price moves dramatically in one direction, only to reverse before the close of the period, and close in the other direction. The price action forms what looks like a pin top or bottom.
For both engulfings and pin-tops, the more dramatic the reversal, the better.
If an underlying trendline is broken within the candestick pattern, like on a lower time frame, then that’s even more powerful.
Here’s a good example:
On XLE last month, the energy ETF that is the “bell weather” of energy stocks — which follow energy prices — a very bearish engulfing formed. Remember, the longer the time frame, the more reliable the signal:
When there is a dramatic reversal like engulfings or pin-tops, traders from Tokyo to NYC take note, and act on it. The price signal manifests itself into reality. Fundamentals don’t move price: buy and sell orders do.
Will price go up tomorrow? Good chance. Will short traders sell the rip? Even better chance. Price ebbs and flows… nothing goes straight up or down. So if you read this, and you wake up tomorrow and energy is up, great. I’m telling you it might happen. That’s just how markets work…
How Markets Work (and How To Get In Before The Herd)
In late June, we saw our bearish signals in candlesticks when all the news was positive about energy prices.
Now, miraculously, news stories come out that begin to make lower prices more rational.
This happens ALL THE TIME in financial markets. I consider it a phenomena of the collective mind of markets. Take a look at the headlines above.
The headlines are just now catching up to price action. The news will get worse, for some reason or another (does it matter? Candlesticks tell us bad news is to come for the price of oil, but we don’t know what it is yet).
Eventually, when the news can’t get any worse, oil prices will signal that they’re going to go up. But the news will be horrible. Then the media will take notice after the candlestick signal manifests itself… then the herd begins to piles in… then price moves. When the last of the herd piles in, the candlestick trader is taking profits.
That’s just how markets work. You don’t need insider information to gain an edge — candlesticks give you the slight edge you need for long-term success. Anyone can benefit from them, whether a long or short-term trader, to everyone in between. I highly recommend them.
What I’m Watching This Week / How to Play It
We have a big Fed announcement tomorrow when they release minutes from their most recent meeting. We also have unemployment data on Friday.
I can’t say what’s going to happen, but I will absolutely be looking for major candlestick reversals on lower time frames around the time of the announcements (2pm Wednesday and before the open Friday). They make for great trading opportunities if you see a signal in the direction of the bigger trend.
It’s best to determine the bigger trend from the longer time frames, then drill down on charts for entry. So if the trend is down on the weekly or monthly, sell the rips on the 1-hour or 4-hour chart; if the trend is up on the bigger time frames, buy the dips on the lower time frames. It’s really that simple.
For example, if I see a rally in energy early Wednesday, only to be followed by a candlestick reversal pattern on the 1 hour or 4 hour chart, I will buy puts on XLE , UNG , and USO , to capture a big move in the direction signaled by the monthly candlesticks: down.
As for stocks, they’re forming a base here and it seems like selling pressure has alleviated some after we signaled bears were back in control.
It feels like a relief rally into the Fed, but too early to confirm a bottom is in. Don’t forget, tomorrow or Friday’s news could be the fundamentally good news the market needs to finalize a bottom. It’s never over until 3:59 pm on Friday at the closing price~
Happy Trading 😊
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