The Secret Behind a Billionaire Trader's Banned Video…
In 1987, a documentary called TRADER was broadcast on PBS.
The film featured a then little-known trader named Paul Tudor Jones.
Yes, that Paul Tudor Jones. The same man who today manages $10.9 billion. And more than $4.7 billion of it happens be his own money.
The video features Jones predicting the 1987 market crash by identifying important areas where the market lined up with previous time periods.
You’ve probably heard this old quote from Mark Twain:
History doesn’t repeat itself, but it does rhyme…
The same is true for markets.
That’s the foundation of the technical analysis that we use to find trades, and it was the foundation of the hugely successful bets that Jones made back in the late 80s.
But you’ll need a lot more than luck to find a copy of TRADER today…
“Jones reportedly bought up every existing copy of the film he could find, and very few copies are still out in the open,” our own stat-minded trading partner Jonas Elmerraji explains. “But having seen it, I can tell you that his approach then was a lot like what I’m about to show you today.”
Before we get into the details, you need to know why the heck markets would rhyme in the first place.
It’s crucial to remember that the market isn’t magic. Mysticism has no place in what we do as traders and investors, so when the market lines up, we’ve got to ask ourselves why.
“The short answer is that markets tend to rhyme because buyers and sellers react psychologically to given market conditions in a similar way,” Jonas explains. “For instance, markets trend in part because when a stock hits new 52-week highs, every shareholder who bought in the last year is sitting on gains. As a result, the ‘back to even’ mentality that usually fuels selling pressure isn’t there. Everyone’s enjoying a year’s worth of upside.”
Here’s where it gets interesting…
Jonas notes that it’s not uncommon to see price action from two completely different time periods line up— especially in the very short-term.
But when price action synchs up over the longer-term, it’s worth paying close attention.
There are many ways we can do this…
We can line up major turning points, trying to find out when they line up. We can run statistical correlations to find periods that have high overlaps. Or, Jonas says, we can get creative and use a combination of those methods.
“Back in 2012, I noticed a high correlation between two time periods in the S&P 500,” Jonas says. “At the time, I told my readers to expect some sideways churning for the next month and change, followed by a distinct rally when the calendar turns to 2013.”
Sure enough, the S&P stopped its sideways grind in January, rallying 29.6% by the time the calendar year ended. It was the best-performing year for stocks since 1997.
“My readers levered up with options and booked 150% cumulative gains in SPY, the big ETF that tracks the S&P 500,” Jonas said.
But the correlation wasn’t finished just yet….
Tomorrow, Jonas is going to show us how he used this correlation to predict another double-digit move in the S&P 500. He’ll also reveal how he’s using relationships like these to make profitable calls on individual stocks.