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Turn Down the Noise
November 22, 2006

Good Afternoon!

Just one glance at the market’s light volume and you can tell that everyone is currently on the road, waiting in line at the airport or simply resting up for the great feast ahead!

As I don’t want to detract from your holiday plans, today, I’m leaving you with a bit of trading wisdom…something for you to digest (along with the turkey, stuffing and pumpkin pie).

This sage advice comes to you from my Trending123 associate, Neuropsychological Trading Coach, Dr. Janice Dorn.

Turn Down the Noise

Much out cry, little outcome…Aesop

The Pareto Principle, sometimes called the 80/20 Rule is something traders must heed, both in the markets and in life.

Originally, the Principle was a mathematical formula created in the early 1900’s by Italian economist Vilfredo Pareto, and was use to describe the way in which wealth was distributed unequally.  In essence, he calculated that 20% of the people possessed 80% of the wealth.  Despite the controversy over how Pareto’s original formula was translated and transformed, the fundamental thesis is valid today.  Sometime around 1935, Joseph Juran coined the phrase “the vital few and the trivial many” in an attempt to elaborate on the work of Pareto.

80% of traders are in a state of reacting to what they perceive to be urgent and critical information.  The constant message on TV now is “Breaking News” as if everything is breaking, important, necessary to be assimilated, will affect your trading positions and must be acted on NOW.  This 80% needs almost constant guidance, is hurled from side to side on a sea of information and is in a state of almost continual crisis management.  This, in and of itself, is a drawdown on psychological capital, due to the amount of energy which is necessary to put forth in order to keep with the barrage.  In the end, 80% of the people are reacting to noise.

The remaining 20 percent are responding.  They open themselves up to the possibility that anything can happen and are able to be still in the midst of chaos as they wait quietly and patiently for opportunity.  The markets are changing constantly — things are always going up and down.  Learn the lyrics to the Kenny Rogers Song, The Gambler and try to live and trade that way.

It is in your best interest, both in trading and in life, to become less reactive and more responsive.  In order to achieve this, one must cultivate a centered, reasoned state of balance.  One must learn to sit comfortable in the pain of being presented with multiple choices, rather than to grab whatever is being tossed out at the time.  Sit quietly, think, allow your brain to melt into a distant observer, and your body to become still.  Be the eye of the hurricane and try to avoid the tyranny of the urgent.  Know when to do something and when to do nothing.  Both your trading and your life will improve once you are able to turn down the noise and focus on what is really important to your bottom line.

Are you ready to take the first step to improving your trading bottom line?  Pay nothing now to discover a whole new world of fat trading profits.

Or, maybe you want to “baby step” the process?  No problem.  Last week I recommended the following three stocks.  All are continuing to do well, so I say, if you didn’t get in on them last week, now’s a perfect time to give them further examination:

HOT STOCK #1: Pacific Ethanol Inc.
(PEIX on NASDAQ)

Pacific Ethanol, Inc. is based in Fresno, California.  It markets ethanol in the western United States.  Through third-party service providers, it provides transportation, storage, and delivery of ethanol.

Chart Pattern: Diamond patterns usually form over several months in very active markets.  Volume remains high during the formation of this pattern.

The Diamond Bottom pattern occurs because prices create higher highs and lower lows in a broadening pattern.  Then the trading range gradually narrows after the highs peak and the lows start trending upward.  The technical event occurs when prices break upward out of the diamond formation.

Technical Analysis of the PEIX Chart Pattern

HOT STOCK #2: Suncor Energy Inc.
(SU on New York)

Suncor Energy, Inc. is headquartered in Calgary, Canada.  It operates as an integrated energy company in Canada.  The company produces light sweet and light sour crude oil, diesel fuel, and various custom blends from oil sands and markets these products in Canada and the United States.  Its other businesses include the exploration, acquisition, development, production, transportation, and marketing of natural gas, natural gas liquids, and crude oil in Canada and the United States.

Chart Pattern: Symmetrical Continuation Triangle (Bullish) shows two converging trendlines, the lower one is ascending, the upper one is descending.  The formation occurs because prices are reaching both lower highs and higher lows.  The pattern will display two highs touching the upper (descending) trendline and two lows touching the lower (ascending) trendline.  This pattern is confirmed when the price breaks out of the triangle formation to close above the upper (descending) trendline.

Technical Analysis of the SU Chart Pattern

HOT STOCK #3: Psychiatric Solutions Inc.
(PSYS on NASDAQ)

Psychiatric Solutions, Inc. was incorporated in 1988 and is headquartered in Franklin, Tennessee.  The company and its subsidiaries provide inpatient behavioral health care services in the United States.  The company primarily operates through two divisions, Inpatient and the Management Contract.  The Inpatient facilities offer various inpatient behavioral health care services for children, adolescents, and adults through a combination of acute inpatient behavioral facilities and residential treatment centers.  The Management Contract develops, organizes, and manages behavioral health care programs within medical/surgical hospitals and the management of inpatient behavioral health care facilities for government agencies.

Chart Pattern: Diamond patterns usually form over several months in very active markets.  Volume will remain high during the formation of this pattern.  The Continuation Diamond (Bullish) pattern forms because prices create higher highs and lower lows in a broadening pattern.  Then the trading range gradually narrows after the highs peak and the lows start trending upward.  The technical event occurs when prices break upward out of the diamond formation to continue the prior uptrend.

Technical Analysis of the PSYS Chart Pattern

Happy Thanksgiving!

John Lansing
Trending123

P.S. In an ever-changing market, it’s not easy to keep up or know what to do next.  That’s why my priority is you.  With timely analysis, multiple daily updates, stock charts, education if you need it and most of all, profits, you will always be “in the loop” on everything that matters.  Whether you’re a seasoned pro, a rank beginner or somewhere in-between, you’ll find plenty to like at Trending123.

P.P.S. Stay tuned for my next round of Hot Stocks…
coming soon to an email box near you!