Veteran Trader: Sentiment a Key to Trading Success

May 2, 2019

By The Gold Report

Source: Maurice Jackson for Streetwise Reports   04/30/2019

Jake Bernstein, founder of Weekly Capital Markets Report and Daily Sentiment Index, in conversation with Maurice Jackson of Proven and Probable, discusses lessons he has learned in over 50 years of trading.

Maurice Jackson: Joining us for a conversation is Jake Bernstein, the founder of the Weekly Capital Markets Report and the Daily Sentiment Index. If you are an active participant in the natural resource space, and you want to increase your probability of higher returns, this interview will definitely pique your interest.

Mr. Bernstein, before we get into today’s discussion, please tell us more about the Weekly Capital Markets Report, and the Daily Sentiment Index.


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Jake Bernstein: The Weekly Capital Markets Report is a report I’ve been publishing since 1972, every week. We focus on opportunities in futures, including precious metals shares; we talk about specific timing indicator cycles, all of those good things that people need to know when they’re trading and investing.

The Daily Sentiment Index is a service that’s published every day wherein we assess the opinion of the small trader, the trader who is most likely to be wrong at major turning points in the markets. It’s a very valuable service that many hedge funds in the world use specifically for their decision-making process.

Maurice Jackson: Mr. Bernstein, you have over 50 years of experience. Provide us with a little background of yourself and how you got started in the trading business.

Jake Bernstein: It’s a very interesting story. I was a struggling student in college studying psychology. I knew nothing about the financial markets, I came from a very poor family. We lived in one room in someone else’s house, and I read an ad in the Wall Street Journal for egg futures. I thought it sounded interesting. I called the broker, he sent me a report, and he told me to send him $1,000. Well, in 1969, $1,000 was real money. You could buy a brand new Volkswagen for $1,600, so I didn’t have the money. He said, “No worries, borrow it from other people and let me trade it for you.” I said how are you going to do it? He said, “I’m going to trade eggs for you.”

Of course, I knew nothing but he soon started trading eggs for me, and before I knew it, I’d made about $3,200 on my $1,500 investment, which sounded pretty good to me. He continued to trade, made a lot of money from me, at which point I said, “Now, how did you learn this?”

He said, “Self taught.” You didn’t learn in school or college? He said, “No.” I said, “If he can do it, so can I.” I then went to the library, got a book on trading, read everything I could, made a trade, and lost all my money in three days. So that was my introduction to trading.

Maurice Jackson: Now, would you consider yourself a fundamental or a technical trader?

Jake Bernstein: Purely technical, although fundamental does work into my indicators. I look at chart patterns, highs and lows, trends, indicators, all those good things people like to hate.

Maurice Jackson: Sir, in your 52 years of experience, what would you say is the best lesson you’ve learned that would be a beneficial for our readers?

Jake Bernstein: Have a plan. That plan has to consist of four items. Set up, trigger, follow through, and risk management. A set up is a pattern. Every market is a pattern. The pattern in gold is very clear, it’s a seasonal pattern, and a cyclical pattern. Once you have a pattern, you need something to trigger the pattern that will occur this time. Once you’ve triggered a pattern and you’re in a trade or in an investment, you have to manage that trade in terms of risk of loss and profit maximization strategy. And last but not least, you have to find a way to get out of that trade so that you’re making money.

Maurice Jackson: What would be your advice for a new trader or investor?

Jake Bernstein: Besides what I’ve already talked about, which is have a plan, make sure you execute properly for the big turn, or the small turn. In other words, almost every trader comes into the market these days wanting to be a short-term trader, or a day trader. If you’re a day trader, the tools you use will be different than the tools you use as an investor. If you’re an investor you’re working off weekly charts using different indicators, and you’re going for the big move. The move that will last six months, nine months, a year, two years, three years, or longer. So there’s a big difference in terms of what you do. I would rather be an investor than a short-term trader; that’s very important to me. I want the big move because the effort that you make in getting the big move is less than the effort you make in getting the small move.

Maurice Jackson: And this segues into my next question. What is the most common mistake that you’ve seen traders make, and how can they avoid it?

Jake Bernstein: Failing to admit when you’re wrong. You have to admit that you’re wrong before you take the trade. Once you’ve done that, it’s easy after that. But traders don’t want to admit to a loss. They are happy to take little profits, but as they say, “They love to ride their losses until they grow hair on them.”

Maurice Jackson: One of the challenges I have when my wife and I have a disagreement is admitting a mistake, and I share with her, “It takes a big man to admit when he’s wrong.” And then she’s waiting, and I say, “But I’m not a big man.” And then I walk away.

Now that we have some background on you, and your work, let’s share how readers can increase their probability of success in their natural resource portfolio. Mr. Bernstein, many of your clients are institutional traders. What do you have to say to someone who believes that the small investor can’t stand a chance competing with the big money managers? Is that true?

Jake Bernstein: For most small investors it is true, because small investors use the wrong tools. If you use the right tools, you don’t exceed your risk level, you’re fine. But most people want to come in, and they expect instant soup, immediate feedback, immediate results. It doesn’t happen that way. If you can train yourself and say, “This is going to take time, it’s going to take effort. It’s going to take time and money.” That’s the first and most important thing you can do. Second thing, get educated. Learn what’s out there. Learn to differentiate between fact and fiction.

The thing that’s so amazing is I give many talks here, in Silicon Valley, where I live, and people come to the meetings, mostly engineers, and I say to them, “Look, you’ve got computers, you’ve got history, backtest this and find out if your idea works.” And they say, “What a brilliant idea! We can use computers!” So if you’ve got a computer, use it, and see if what we’re saying is true. Is there a real cycle in gold? Is there a cycle in platinum? How high has it been before? What do the chart patterns look like? Is there repetition? Those are all very important aspects of the research that you have to do before you get started.

Maurice Jackson: You are one of the most respected names in this space, and one name in particular that has recognized you as well is Bob Moriarty, the founder of 321Gold, and 321energy.com. He noted in his newly published book entitled Basic Investing in Resource Stocks that your publication, the Daily Sentiment Index, has been a highly resourceful and highly successful platform. Multilayered question here for you, what is the Daily Sentiment Index? How does it work? And more important, why does it work?

Jake Bernstein: Oh, loaded question. It’s a survey that we do online every day. We ask the question in various ways, “What’s your opinion about the market? Are you bullish, are you bearish?” And invariably we find that most of the time small traders are emotional and make decisions based on emotion. They don’t answer the question, “What is the logical way to approach this?” They get very scared, they get very happy, they panic to buy, they panic to sell. And you, in your business I’m sure, have seen many of these things happen. When a small trader gets too excited about a move and say, “I must own gold. The last two years gold has been going up.” Now they say, “I need to own it right now!” That’s a red flag, and that’s the way the index works. So we’ve taken emotion and we’ve translated it into a number. And by using that number in correlation with prices, that’s where the big boys make their money. By doing the opposite of what the small traders are doing. But not always. The small traders are not always wrong. They can be right for extended periods of time. It’s just when they have an extreme opinion, that’s when they’re wrong.

Maurice Jackson: I can attest to that as a representative of Miles Franklin Precious Metals Investments, the number one selling metal for us right now is palladium. And I’m a strong advocate of buying low and selling high. So two years ago, I was advocating the purchase of rhodium and platinum and silver. Recently rhodium has peaked, and we’ve of sold our position in rhodium at $3,000 and now we’re strong advocates as we have been for silver and platinum. But it’s very true what you’re saying there. People tend to follow the crowd, and as part of that herd mentality, even though they are contrarians, because it’s a very small market. They like to follow at the highest price, and sometimes they get trapped into that.

Jake Bernstein: You are absolutely right, and by the way, my opinion, independent of us having talked, and in fact this is the first time we’ve spoken, I totally agree with you regarding silver and gold. And platinum in fact, because platinum is way underpriced relative to gold.

Maurice Jackson: Do you use certain indicators or tools in your work to assist you in the decision-making process?

Jake Bernstein: I use moving averages, not the traditional way. I use market sentiment, I use cycles, as you know, and I use divergence. In other words, when is the price moving up too fast or too slow on the down side? When that happens we tend to get turns in the market. So we’ve been bullish on palladium for about two years now, and just about six months ago we said, “It’s time to start taking some money off the table.”

Maurice Jackson: Mr. Bernstein, before we close, many members of our audience have a favorite precious metal, and you slightly discussed here briefly, what is your long-term outlook for the metals markets?

Jake Bernstein: I’m very bullish based on fundamentals, based on cycles, world economies. Everywhere has painted themselves into a corner. Interests rates are lower than the cost of money, allowing huge expansion without the brakes being put on by central banks. So, eventually, tangible assets are going to take the lead, and the most tangible assets are the precious metals. I’ve always been, for lack of a better term, a gold bug, I always own a little gold, I always own a little silver. But lately I own more silver and gold than ever before, and platinum especially I think has a very bright future ahead. But you know more about that than me.

Maurice Jackson: Well, I agree with the sentiments again, because I’ve been advocating it for a number of years, and with our subscribers my position and advocation is for owning physical silver, physical platinum, and it was rhodium about two years ago, year and a half ago. But again we’re now more focused only on silver and platinum.

Jake Bernstein: Can I ask you a question? Would you tell me about rhodium?

Maurice Jackson: Rhodium is a very small market, an exceptionally small market, and it’s used in primarily for industrial purposes, and those industrial purpose tend to be for catalytic converters, and for jewelry.

Jake Bernstein: Where does most of it come from?

Maurice Jackson: Most of the rhodium comes from South Africa and Montana and Russia.

Jake Bernstein: Can rhodium only be bought in, what, ingots, or bars?

Maurice Jackson: Rhodium can be purchased in 1 oz bar/ingots.

Jake Bernstein: And what is the price of rhodium lately?

Maurice Jackson: Rhodium right now is about $2,700–$2,800 U.S.

Jake Bernstein: Does it move up and down with palladium, platinum, or gold, or silver? Or is it independent?

Maurice Jackson: I think it’s independent, because it was $10,000 at one point in time. When I say one point in time, we’re referring to within the last, I think, 10-12 years. And that’s why I was a strong advocate for owning rhodium in 2017, was because I knew it was at a 90%, 91% discount. When it was $850, it was a no brainer to purchase rhodium.

Dr. Bernstein, what keeps you up at night that we don’t know about?

Jake Bernstein: Cybersecurity. I believe that the internet, and the availability of internet information on everyone, has expanded way beyond what technology is intended to do, and certainly society can’t keep up with it. So what keeps me up is the ability of anyone out there to find out anything about anyone. Hack into their accounts, steal their money, and I think we’re just seeing the tip of the iceberg in terms of security breaches, and that keeps me up at night.

Maurice Jackson: Last question, sir, what did I forget to ask?

Jake Bernstein: You didn’t forget to ask anything, you’ve been a great interviewer. The one thing I would like to say in addition to that is, look at the ratio between platinum and gold. There was around a $400 discount to gold, so if you’re looking for precious metals, in my opinion of course, platinum has more bang for the buck, more potential to rise. I would much rather own platinum than gold. I don’t want to be short gold against long platinum, but I do think platinum is a place that deserves my attention.

Maurice Jackson: Mr. Bernstein, for readers who want to get more information about your work please share the contact details.

Jake Bernstein: Please visit www.trade-futures.com, you can see all about me. The good, and the bad, and the evil.

Maurice Jackson: And last, but not least, please visit Proven and Probable where we deliver mining insights, and bullion sales. You may reach us at [email protected].

Mr. Bernstein, thank you for joining us today on Proven and Probable.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

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