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  •
      Weekly Report from the Fibtimer Stock Market Timing Services


Have The Markets Changed?

Questions we are commonly asked are: Have the markets changed? Is it different this time? Have advances in technology made it so the average trader does not have a chance anymore?

These questions are easy to answer, and with complete certainty: No.

Free markets behave the same as they did 200 hundred years ago. The same as they did 40 years ago. They same as they did in the bull market of the 1990s. They are the same today, and will be the same in the foreseeable future.

Why? Because free markets are never static. Because they always CHANGE. They are subject to the buying and selling of millions of participants, each with his or her own viewpoint and / or expectations.

Any analyst can "predict" a rally or a decline and have a chance of being correct. But try and repeat the feat with consistency.

The only thing you can absolutely count on is change. Markets will advance. Markets will decline.

If you have a trading system that is specifically designed to "use" change, you can take advantage of the market "changes" and make money.

Changes will not impact negatively on you if your strategy for handling them is actually based on them. If your buy and sell signals are created by the ups and downs of the market itself.

Predicting The Market's Future

If change is the only "certainty" looking forward, then how can one predict (forecast) the market's future?

That is the point. "No one" can predict, with any certainty, the market's direction. But while no market forecast can be guaranteed, change "is" guaranteed.

"Look at the last 200 years of market history and you will see that it was in a "trend," one way or the other, most of the time. "



One thing we can be sure of; if your plan is to just buy and "hope," you will be in for some very unsettling times.

The markets will have incredible moves in the future, both "up," as well as "down." You will be ecstatic during rallies, and upset and worried during declines (and likely depressed and fearing each day during the inevitable bear markets that "will" occur in the future.)

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Sound like talking in circles? Not all... Let's tie it all together.

If change is inevitable, the only certain way to profit from the markets is to follow a plan that is "based" on change. That actually works "because" changes occur. Because change is inevitable.

Advancing (and declining) markets that last months and often much longer are called trends. Look at the last 200 years of market history and you will see that it was in a "trend," one way or the other, most of the time.

FibTimer follows trends. No matter how ridiculous those trends appear to be at the beginning, and no matter how extended or how irrational they seem at the end, we follow trends.

But Hasn't Technology Changed The Playing Field?

Some would argue that today's markets are different. Technology has given select traders an edge that takes away from the average person's ability to profit.

Buy and sell programs, moving massive amounts of stock, take advantages of fluctuations in prices that no individual can hope to master.

"Prices must either go up, down or sideways. One of these three outcomes will occur... CHANGE is inevitable."
In fact they "create" fluctuations in prices. For every 10 traders with a computer program saying buy, there are 10 other traders with computer programs saying sell.

No matter what you do. No matter what the experts do. No matter what the computer generated programs do. Markets go through different stages: accumulation, advance, distribution and decline.

Prices Will Go Up, Down Or Sideways

One absolute can be taken as gospel: Prices must either go up, down or sideways. One of these three outcomes will occur... change is inevitable.

No advances in technology, no leaps of modern science, no radical shifts in how we see the markets will ever alter this fact.

Thus a market timer does not need to predict the future, or even attempt to predict it. A timer only needs to know the rules of the game and abide by them. If the market goes up, be long. If the market goes down, be short or in cash.

And very importantly, if you can react properly to "changes" in price, you can profit.

Strategy Based On Change

Trend followers are always poised to jump on board the next unexpected major move in the markets, and to profit from it.

While some people focus on the past results of a trading system to gauge its success, and others only think about what happened last month. Both are wrong.

A great trend following system adapts to and uses change. The "future" is its most important ally.

A good trend following strategy lets profitable positions continue, while quickly exiting positions that go against you.

Human Nature

There are always fears that trend following may not work in the future or that the markets have changed and trend following is not the way to go.

"...if you can react properly to "changes" in price, you can profit."
This fear is strongest after a drawdown or during unprofitable sideways markets.

Get used to it. They happen!

Then along comes another big move in the markets. Market timers who follow trends "again" make big profits and everyone’s belief in trend following is restored.

But those who dropped by the wayside are still on the outside looking in, trying to understand how to generate profits. After trend followers lock in a nice gain, those who left may even climb on board and try trend following again.

But human nature is fickle.

If the markets are going sideways and current trading is not going well, alternatives begin to look better and better.

Untested or insufficiently tested methods may be implemented in an effort to turn things around. Of course, such acts of desperation rarely work. Market timers should be suspicious of the urge to change, made during emotional periods, after market moving news events or in the midst of a drawdown.

To Be Continued...

"Have The Markets Changed?" will be continued in next weekend's commentary.


Recent articles from the Fibtimer market timing services;

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Fibtimer reports may not be redistributed without permission.

Disclaimer: The financial markets are risky. Investing is risky. Past performance does not guarantee future performance. The foregoing has been prepared solely for informational purposes and is not a solicitation, or an offer to buy or sell any security. Opinions are based on historical research and data believed reliable, but there is no guarantee that future results will be profitable.


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