Interview With John Bollindzher

John Bollindzher, author of the famous Bollindzhera, talks about market cycles, miss the opportunity and the reasons why the consolidation in the market is a perfect situation for trade on the movement.

On the markets, all repeated, sometimes you just wait a while.

When we last spoke with an analyst and financial manager John Bollindzherom at the end of 2000., Were still alive a debate in the financial community about whether the decline which the market moved in that year, just a factual correction or bear market. Even many of the brave enough to call a bear a bear, when they saw it, were inclined to a positive turn, arguing that the market turnaround occurred, probably two or three quarters earlier.

John does not currently academic observations. It takes the current market, it is especially interesting because he began to sell immediately after the last long bear market consolidation, when the market was getting ready to bychemu movement of the 1980th.

At that time, Bollindzher said long-term investors on the merits of disenchantment with the stock market after years of frustration, while the traders, who have adapted to market movements up and down, were still in the game and make money.

Mark: The situation has changed since last time, when we talked. With traders can learn from what has happened since 2000.?

John: I think it is important to understand that all stock markets, not just the U.S., undergo cycles of growth and consolidation. And it's quite long cycles, of which we speak.

On the American market cycle usually lasts 16 years. Growth after the Second World War, which began in 1950. and continued until 1966., accompanied by a consolidation phase, which lasted from 1966. until 1982. (see chart below). This was followed by another big phase of growth in 1982. until the summer of 1998. Thus, we are now four and a half years are in a stage of consolidation.

Mark: Only 16 years old and up to date! John, you've just plunged many into depression.

John: I do not think that there is a reason! When I entered the market in 1980., There was no long-term investors - they all went to the disorder in the market. All were active even those whom we called swing-traders (trading on the movement).

Definition swing traders then slightly different from today. Then it meant a little bit longer. Swing traders then used the daily and weekly charts and tried to capture the medium-term fluctuations, which lasted from 10 to 20 days to six months or even years. They were making money and doing very well.

Mark: Can you describe how you feel the shift cycles of growth and consolidation in the market? What are their attributes?

John: In the early stages of consolidation of each believer in the principle of "buy and hold" because they have just enjoyed a long period of bovine, during which it is very difficult to navigate, and you are really well done, if you just bought a wide range of stocks and holding them.

In the late stages of consolidation, all adherents of "buy and hold" had been completely broken. They do not made a single cent for many years, so they went to another place. At this time, swing-traders are the kings of the market - the only ones making any money.

The timing of the market, which was not relevant during the stage of growth, it is extremely important during the phase of consolidation. For technical traders, this is a great opportunity, because while there are large, medium-term fluctuations, which can be traded. In this situation, a well-worked the classic indicators of the type of improve-decline line, MACD, moving averages and oscillators perekuplennosti and pereprodannosti.

Mark: The fluctuations, which you say are very large, is not it? If we look, say, for the period 1966 - 1982, The market was, in fact, in the commercial field, but it was a very wide range, and basic movements sometimes lasted more than a year.

John: Yes, there is a huge movement. And that means opportunity. Just using round numbers, the stock market the Dow Jones reached roughly 10,000 in summer 1998. Only considering fluctuation of 10% or more, the Stock Exchange traveled to the 20,000 points since then.

Of course, it is virtually impossible to choose a base or top of the movement. This means that traders are trying to take advantage of these fluctuations will linger at the entrance and exit from the market. Let us suppose that you skip 25%, ie should be one-quarter of the price movement before you recognize that the direction of the market has changed. But it does mean that you can still grab half the traffic, or 10,000 of 20,000 items that have occurred over the past four and a half years - a period in which most people lost money.

It is important to understand is that in this case, we do not find in the market environment "buy and hold", we are in the market environment-swing trading. Keys to success in a market environment, the trader - the timing of the market and group of market-based instruments and their timely substitution - in other words, the timing of the market at the macro-and micro-level.

Mark: Let's run on some ideas to deal in a consolidation phase, to which you are talking about. Where do you expect to, the trader should start trading in a bovine long-term trend?

John: In this type of market, it is best to operate with regard to instruments - those that allow you to receive information about what happened in the relatively recent prior period.

Of course, different for different traders assess "the recent preceding period. For some it will mean what happened this morning, for others, it would mean the past 20 days or the past six months or a year. But the relative advantage of tools is that you can adapt them to your goals.

The bands Bollindzhera, for example, provide information on whether high or low prices relative to the ground. At the upper price band is high, while the lower band - low. If the price reaches the upper band, then you know that prices are high and you can explore other tools to determine whether it is a "high" or is it viable to turn a potential sale.

One of the mistakes that I have seen - is that people consider bands Bollindzhera as the simplest possible ways. They automatically think that the upper band is a sell signal, and the bottom line message of your purchase. This is not true. The upper and lower bands are related to the sale and purchase, respectively, but this is not a call to action. The price may go on the top band, or go down to the bottom band, and often when this happens, you get some of the most lucrative deals.

But with rare exceptions, bands Bollindzhera should not be used separately. You must combine them with other tools, which confirms the reliability of their testimony. I used for this purpose the indicators of volume.

Mark: How do you determine the ratio of risk and return?

John: There are only two ways to improve the efficiency of your work. First, you can increase the number of the winning transaction in relation to losing. If you estimate 0.5, you can try to add different information to select the time and displays, and so on, to raise your average to around 0.6 or 0.65. I think it will be very good if you have 65% of the winning transaction.

Second, you can increase the amount of your winning transaction for the size of Losing. For example, if your winning twice as many transactions Losing, then it's quite good. If you have 60 - 65% of the winning transaction and in two - three times more Losing, you will find that making money fairly quickly.

Using this approach, you can apply to the measurement of income in relation to risk. You calculate the winning deals against losing in the presence of entry points to the logical stops located near the levels that indicate that your transaction was improper. You increase the number of winning deals, finding the right indicators, and improving its analysis.

Mark: What about the components of trade, which are important regardless of the direction of the trend?

John: I think that the idea to remove their trade in the direction of the highest probability of success is very important. On the lateral market, you get a fairly significant medium-term buy signals about the range of grounds and signals the sale of some peaks, which should dictate the direction of your trade. Clearly, if you can shift your trade in favor of medium-term fluctuations in market direction, you will follow the path of advancement of two key components of success.

With regard to the interim format is, if you use the bands Bollindzhera, for example, rather than trying to adapt the format of the temporary, changing times and the width of the bands, you can start with values of 20 and 2, which is very well in most cases, and then try to use different length of the bars.

If you are using daily bars and want to move to a more short term, you can switch to the time bars. If you want to see the bigger picture, try to move to the weekly bars. This is a good way to get an idea about what is happening in different time formats.

Mark: We can consider some of the ideas that we discussed at a graphic example?

John: What's interesting right now, many interesting tools have formed a trading patterns.

If you look at the schedule for Microsoft (MSFT), and you'll see a rather classical picture (see chart below). The action has recently made the base "W": W right side was slightly lower than the left side. Both sides marked the bottom lane, we could expect, and then the volume started to rise when the campaign started to grow from the right side of W. Buy signal received on 2 January, the day of growth.

Now (mid-January) action is along the upper band. From my point of view, Microsoft had behaved perfectly for the medium-term fluctuations in the trade: Offer a clear turning point, which is easy to see and then received a confirmation in the form of increase in the direction of a new rally.

Mark: Working with the assumption that the current market may be in the stage of consolidation during the period from when you began to scale its analysis?

John: It depends on what you are trying to do. If you would like to receive information on market activity in the medium term, I think that you can assess the fluctuations of the three - six months to a year - it will be a model of what happened in the past. Weekly bars seem to be the appropriate way to visualize this information.

When you go to a short period, in fact, to make a deal on specific market-based instruments, I recommend the daily bars. This is my personal opinion. I analyzed the charts for many years, and I prefer to work in a temporary format. For short-term traders will be very useful time schedules.

There are traders who sell to an even shorter time intervals, using a five-minute bars and ticks graphics. But the concept remains the same, regardless of the time format: knowing what is going on in the long lapse of time, you can properly adjust their actions in a shorter time period.

If you get a good signal for each long position, and the market is in a rising tide, it will be much more reliable than the signal input to the short position.

Mark: What can you say about the various markets in sync?

John: I really believe in the importance of industry groups and sectors in the stock market, especially in the lateral market. This is like a rowing-boat: when the lifeboat four rowers, then one can compare with a separate action, another to provide both industry group, as the third sector, and the fourth as the entire market.

When all four rowing oars in the same direction, the chances of success greatly increase. But if two rowing in the same direction, and the other two in the opposite direction, they will not priplyvut. The same goes on the market: if you're trying to get up in the short position in shares in a weak group, when the sector and the market is strong, the chances of success are not so great.

When I started in 1980. Something that was understandable. First, the principle of "buy and hold" has not worked and not worked very long time. If you buy a stock and hope for the long-term trend, you lost. Secondly, the relative strength worked and worked well - you can buy the strongest stocks on the plane, changing market and to succeed.

Of course, after the 16-year-old bovine market, everyone said, 'No, no, the timing of the market to anything you do not purport to do so - just "buy and hold." But now we have again returned to the calculation of the time the market.

Mark: Do you think that this cycle will be different from previous cycles, like the 1970th time when many people leave the market?

John: This cycle will not differ drastically. Some people leave the market, disappointed by it. It is - part of the market environment, the development of a specific cycle.

You can already see that some of the other mechanisms are beginning to become in their place: the Bush administration proposes to end the double taxation of dividends, making dividends more attractive. Gradually, the ratio of payments to the price will rise again, and investors have become more interested in investing in stocks that pay dividends, and after a certain time, long-term investors, who had other sectors of the market return in equities.

Ultimately, we will have to deal with this consolidation, and the basis for the next big market will be built bovine. When he goes, you will have a lot of doubters and voting against it, and meanwhile the market will continue to grow and grow. And when the latter is doubtful, at last, be convinced of the growth, the time for the next consolidation!

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