Question of the Week: 11/18/2009

Why is Neely River Theory (NRT) so secret and so you ever plan to make NRT public?


Market opinions are a dime a dozen; trading systems are just as prevalent. What separates the general public from professionals in this business is the recognition that trading success is NOT the result of many accurate market forecasts. It is the result of many precise, well-timed market entries that involve low risk and which are quickly exited when expectations are not met OR are held for long periods while conditions remain favorable. It also requires adapting your own trading style (i.e., market entry, stop placement and exit strategy) based on environment. For example, when a market is trending well, buying into strength and selling into weakness works well. On the other hand, the same "trend following" strategy - when applied to a consolidation environment - will produce a string of losses. For a consolidation environment, selling into strength and buying into weakness (i.e., top and bottom picking) will produce the best results. When a market is under slow accumulation or distribution, an "entering-on-pullbacks" strategy (what I call bargain hunting) is the only way to go.

Most traders naturally and unconsciously pick only one of the above three trading styles as their primary approach to markets. As a result, they are in sync with a market's behavior only 1/6 of the time (i.e, three trading styles times two market directions). Based on wave theory, if a pattern takes 60 years to form, 1/6 of that period is 10 years. Your trading may go extremely well for 10, straight years, but when your approach is no longer in sync with the market's "rhythm," the next 50 years could be a total disaster.

So, the secret to successful trading is not only in controlling risk on every trade, but also in adapting your trading style to the market's current environment on a specific time frame. Neely River theory focuses on understanding and identifying the three primary market trading environments (no matter what time frame) and the best approach to each. With that information you can adapt your trading style to fit a particular environment. The result is a far greater number of profitable or breakeven trades and a far fewer number of losing trades.

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