While the investing world has always been subject to innumerable
uncertainties, it seems that in recent years this is even
more the case. On any given day there are so many potential
news events that could change market direction that it
is impossible to keep track of them all.
The world has emergencies just waiting to boil over all the time. How can we
as trend traders stay one step ahead of the financial markets? Markets which
are assimilating and reacting to all these events constantly, and more importantly,
instantly?
Over the years, trend timers (trend traders) have consistently generated excellent
returns in the markets because they make their trading (market timing) decisions
based on a core piece of information.
Although there are innumerable indicators measuring everything from sentiment
to volume, every one of them is subject to interpretations which can result
in incorrect decisions. For example; MACD crossovers can give two correct signals
in a row, but then be wrong several times. What seems perfect for awhile, is
not so perfect when watched over time. This is true of all the indicators most
technicians follow.
Fundamental analysis can identify the perfect stock or
market sector, but of what use is it if that stock or sector
declines even while the fundamentals look superb?
But there is one indicator, one core piece of information, that is always up
to date and always correct. That piece of information, is price. And particularly
the closing price at the end of every trading day.
All the news, inside information, economic and fundamental
data available, is reflected in that closing price.
Price is the ultimate indicator. Seem too simple? Read
on...
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The Combined Thoughts Of Millions
Of Investors
In prior commentaries we have described price as, "...the perfect reflection
of the combined thoughts, analysis, indeed the intelligence, of millions of
investors."
No matter what is occurring in this world that could conceivably affect the
markets, it is "already reflected" in the current price.
Whether you are looking at commodities, stocks, currencies, or any freely traded
market for that matter, the current price reflects all the news, all the time.
Market investors and traders are constantly bombarded with a huge array of
statistical information, indicators, fundamental data, economic studies, news
releases, plus the tug of war created by our own emotions.
All You Need To Know
There is enough information out there to make your eyes
glaze over. But none of them tell you when to buy or
sell.
The very idea that price offers all you need to know, that it tells you when
to enter and exit "any" freely traded market, flies in the face of many analysts
who have spent their lives studying these markets. How could something a simple
as price be all that we need?
Let's look at some simple examples:
Let's say that XYZ stock has gone from $10 all the way to $100. When that stock
was at $10, did anyone know it was going to $100? It is likely that no one
knew, but trend traders using price to determine when to buy the stock would
have been buyers all the way up because as price increased, they bought.
| "...it
made no difference what the analysts said, or
what the prevailing sentiment was. The price
was declining so the trend was down." |
If you had a chance to buy the same stock at $25 a share,
would you have taken it? Probably not. The stock was up
+150% at that point. Most investors would wait for a pull
back to buy it.
But not trend traders. The trend is up, you go with the trend. "Price" has dictated
the direction of this trade in unmistakable terms. It was a buy at $15, $25,
even a buy at $80.
When Nortel (NYSE:NT) was at $80 a share in year 2000 and dropped to $70 a
share, the vast majority held onto this blue chip stock, and many bought more
shares at this new bargain price. In fact, people were buying at $60, $40,
$20, $10. They all lost money. Huge amounts of money. Were they buying when
it was under $1.00 a share? Probably.
But trend traders were taking short (bearish) positions because the "trend," based
on changes in "price," was down. It made no difference what the analysts said,
or what the prevailing sentiment was. The price was declining so the trend
was down.
When Nortel was trading at less than 50 cents a share only two years later,
trend traders were buying their own private islands, but those who bought Nortel
for the long haul had lost their entire investment except for just a fraction.
This included huge investment firms, pensions, money managers, etc.
Nortel may be old news now, but what happened to that stock, and the investors
who traded it, applies as much now as it did then.
Had investors even considered trend changes in price in their intricate trading
plans it would never had happened.
Trend Traders Never Fix A Profit Target
In the above examples, would you have taken profits at some point?
Trend traders never fix a profit target. They realize that there is no way
to know ahead of time when a trend will end, so they stay with the trend all
the way. When it ends and reverses, "then" they exit the trade.
If you bought the above XYZ stock at $20 and took profits at $30, you would
have a nice +50% gain, but would have missed the +400% total gain of the entire
trend.
If you had exited your bearish position in Nortel at $60, or at $50, you would
have missed the huge profits still to come.
No one, not even trend traders, knew that Nortel would reach less than 50
cents a share. But those who trade trends and allow price to dictate when to
exit a position, held the bearish position for huge gains. At the least, those
who exited to cash did not lose their capital.
No one knows when a trend will end. Only price tells us.
Trend traders seldom get in at the exact bottom, nor exit at the exact top,
but they do profit from the majority move of every trend, and they have clear
buy and sell signals.
All generated by that one simple piece of information, price.
Conclusion
Trend traders do not believe that anyone can consistently pick tops or bottoms.
They do not believe that reversals can be consistently traded either. Sometimes
people get lucky, and sometimes they do not. But if you trade trends, luck
is not needed. You have price to tell you when to enter and when to exit.
Trend traders who use price to determine trends have been quietly beating the
markets for many years. They will quietly continue to do so for many more.
FibTimer identifies and trades trends. We never miss any trend because we
trade them all. Emotionless, non-discretionary and profitable.
