Flip a coin 10 times, and see if it lands on tails 10 times in a row. 

Can it happen?  Of course.  Anything can happen.  Heck, it can land on tails 100 times in a row. 

The odds would have to be ("one") in the billions somewhere, but it could happen. 

But if flipping a coin resembles the way you pick your investments, it's time to change your approach.

Move the Odds into Your Favor

When adding new positions to your portfolio, the important thing is to play the high-probability bets whenever they are available to you. 

For instance, if I told you I'd be willing to accept YOUR bet -- as much as you're willing to wager -- that if you flip a coin 300 times, it will land on tails somewhere between 20% and 80% of the time, then you'd be foolish not to take that bet every time. 

That's it.  We can't think any further than that in the stock market.  That's how you grow your wealth over time at a much-faster pace than the stock market's long-term "buy-and-hope" strategy.

Actually, that's not true -- the part about not thinking "any further than that." 

To Beat the Odds, Realize That They Change

There is one more part to this game that we must adhere to: the willingness to change your stance as soon as those odds change. 

Learn how to embrace the willingness to admit when things change, so that you can adapt quickly to the market's new agenda. 

And that's what I'm here to talk about today. 

'Just Do it,' but Don't Overdo it

The biggest mistake made by investors, professional or not, is sticking with a losing trade. 

The other biggest mistake -- perhaps tied for first -- is "overtrading." That is, feeling the need to constantly be in the market or else feel like you're missing out.  Or, said differently, straying away from the principle of only trading when faced with overwhelming odds of an outcome.

Go With the Money Flow

Since the market is constantly evolving, we can't just stick to our old guns.  We have to evolve with the market.

Last week I told you institutions are dumping stock.  That's, of course, absolutely true. Institutions were hammering stocks by liquidating positions. And instead of putting that capital into a different security, they were beefing up cash positions. 

A large percentage of stocks broke through key support levels, which takes a heck of a lot of selling pressure, along with buyers abandoning their stronghold. 

There's Always a 'But'...

Institutions started buying again, however, after this weekend's G-20 meeting (where the members pledged to keep economic stimulus in place until a recovery is assured). 

The effect on the markets was renewed risk-taking sentiment, borrowing on the cheap, and plugging that capital into equities. 

The Group of 20 pledged to keep economic stimulus in place until a recovery was assured, yes, but that doesn't mean the market won't sell off until the economic recovery is assured. 

Let's keep things in perspective here: The economy is a mess and unemployment continues to climb. Additionally, looking for the silver linings and ignoring the real losses on the banks' balance sheets, along with a new U.S. bank being shut down every other day, has become the latest trend. 

And that's the part where investors always get tripped up. Right there in the last paragraph! 

Don't study what you just read, but think about the crossroads we are now at in the decision-making process.  Making the argument that the buying of U.S. equities is an irrational move, at this point, is  NOT what we want to do. 

Arguing that everyone is crazy and this shouldn't be happening is where we make the wrong turn at the crossroads.  It's the easy turn to make, given the fact that we just positioned ourselves for a continued sell-off. 

Boy, is it gut-wrenching to have to change your stance, right? 

Well this time we don't have to have our guts ripped out.  In fact, we aren't doing a 180-degree turnaround with our stock market stance.   We are simply evolving with the market and going wherever the money is flowing. 

Here's what we are doing:  We are going to look for confirmation of Monday's rally (I'm writing this Monday afternoon) with internal strength in the market (to be sure the rally wasn't just in the bigger names, propping the market up).

If we do see bullish follow-through, instead of changing our stance from bearish to bullish, we are going to withdraw many or most of our bearish positions, and wait on the sidelines. 

We are not ready to be bullish until we see at least a 6% net change in the number of stocks in the market where the stocks move from sell signals to buy signals. 

If stocks just broke through support levels, and reversed back up to those same levels, then those old support levels tend to act as new resistance levels.  I would have to see resistance levels broken for me to change my stance to bullish. 

I have accounts of my own that, in some cases, I can't take bearish positions.  They were moved to cash.  Those accounts will not be moved back into bullish positions until we see what I described above, happening. 

Finding 'Support' for the Market's Next Move

Why am I close to changing my stance?  Because, as you can see below, there was an uptrend line that was violated (blue diagonal) that happened as institutions unloaded stock. 

Typically, that old support level (which was a MAJOR support level) would act as the new resistance level.  But Monday's action pushed the market back above that level (green arrow). 

At the same time, there was another key level penetrated to the upside, and this action looks to be accompanied by a MACD buy signal (red circle). 

The Dow-30 broke a new high, but that doesn't impress me, frankly.  I don't care much about a price-weighted average of 30 stocks that was created a century ago and weighted the way it is for reasons that don't exist today. 

But when I see the S&P 500 making this move, it's a cause for concern. 

 

Now, all of the technical bearish facts (other than what I mentioned above) that were mentioned in my Tycoon Report article last Tuesday still apply.  To refresh on what was stated, read last week's article here. 

That's why we can't even change our bearish stance until we see confirmation of Monday's action, and furthermore, we won't be bullish until we see dramatic changes in the internal (real) market.  But I thought I should write this article anyway, because you won't hear from me again until next week's Tycoon Report.  

You'll Never Regret Only Betting on the High Probabilities

You don't really have to flip the coin 10 or 100 times.  I'll save you the trouble by saying a high-probability bet is not a guarantee, but it MUST be played any time it appears in the market. 

I always look back at all trades in hindsight each month, quarter and year.  I know for a fact I would play this situation the same exact way every time it's presented to me. 

Because, as I wrote about last week, it's not about being "right" or "wrong" about a stock market stance. (I know when I'm right BEFORE I know what the outcome is.)  It's about being "successful" or "unsuccessful" for the period. 

And if this market should confirm Monday's bullish action, we were right about our stance. 

At this point, it's just a psychological game against yourself.  Will you let your emotions dictate your actions?  Or will you look to the market and move to where the money is flowing? 

One answer will kill your account and the other will make you wealthy. Choose wisely. ...