The Trend is Your Friend....

This is almost a universal mantra for traders everywhere. I agree with this, because it is what you might call, a trading truism.

Being a trend follower makes a lot of sense.

But realize that with any methodology or system, there are always trade offs. In the case of trend followers, by definition, they are always going to be late to buy and late to sell. ALWAYS.

If you wait for a trend to develop, you give up gains at the front end and the back end of a move. Nothing wrong with that if your goal is to capture the middle 2/3 of a trend.

What trend following fails to recognize is the initial early shift in the market between supply and demand. I have said it before, and I’ll say it again: markets move based on supply and demand. That is the bottom line.

Trend following, using graphs and technical analysis is only a way of measuring the results of supply and demand by looking at price movements on a chart. It is not supply and demand itself. It is a derivative.

Markets do not move according to charts. The Fly’s (www.ibankcoin.com) humorous statement about technical analysis being “the lazy man’s way” has some ring of truth to it.

Sometimes you have to force yourself to change the angle of your perspective and view things in a different way.

That said, I am not against technical analysis. I am for making money, using all kinds of ways to look at the market. At certain times, some ways to look at the markets are better than others.

Lately the bad news has been overblown, in my opinion. People start talking about how terrible things are, and before you know it, the herd mentality develops. This is basic human nature. It is true on the other extreme, as well, where people develop “irrational exuberance”.

I think we work our way back up from here. The demand factors, right now, seem to indicate that. I know that is not the opinion of the majority, and I take some comfort in that. If you wait to put cash back to work in this market until you feel good about it, you’re missing the move.

Parting thought: Where else are institutional investors going to put their money? In cash? With interest rates going down, the return on cash or bonds won’t even beat inflation. There are some very good names that are bargains right now. Mutual funds not only have a fiduciary duty to manage money prudently, but by prospectus, most of them have to be FULLY invested.

If you were a trend follower, your money probably would have been on the Patriots.