Let The Market, Not The Gurus Show You The Way
Let The Market Show You The Way
Many regular people when they first try their hand at investing,
insist on trying to tell the market where it should go. By this I mean
that they buy stock when the market is falling in the hope that it will
rise, or they sell stock after it has risen a little way in the fear
that it will fall.
No matter how much money you have, the market does not care what you think. So why try and impose your hopes and dreams on it? The best investors are the ones who (usually after many market poundings) have put their egos aside, and instead let the market tell them where it is going. When they do this, the profits start to flow.
Even Gurus Get The Blues
Every time I see a new “market guru” or economist predicting where the market will be in the next year, I can’t help but chuckle. These professionals are no better than novice investors imposing their beliefs on the market. Some of the most expensive market newsletters, using such complicated techniques as financial astrology, Gann cycles or other time consuming techniques still only get it right 50% of the time or less. To me, this seems ridiculous. Why not just flip a coin? It takes less time, costs nothing and gets the same result.
So, when a trader or investor gets to the stage where they are ready to let the market tell them where it is going, what can they do? It is simple:
1: Never try to pick or call market tops or bottoms. The greatest investors in the world don’t do it, and unless you are better than them, neither should you. The only people who try to pick tops and bottoms are economists who have never made a damn cent in the markets. They make for entertaining reading, but expensive advisors.
2: Use tested techniques for analyzing the overall market first, then your chosen stock second (for more on how to analyze the overall market, click here). Techniques such as Dow Theory or Trend Lines are some of the ones used by myself, but there are hundreds of others that you may prefer instead. Whatever you use, the idea is that you test them and know their probability and risk reward ratio (for more on getting these stats, click here) before you risk your hard earned cash.
When asked about a definite way to make money in the markets, Nathan Rothschild said “There certainly is: I never buy at the bottom and I always sell too soon.” The biggest trends occur after breaking out from the first base. They do not occur directly after a trend has changed.
Letting the market show you the way can take some time to come to grips with. I know investors with 20 years experience still trying to tell the market where to go. But get rid of your ego, follow the market’s direction, and you are putting the odds of probability on your side. It’s then that you have found yourself a very powerful ally indeed: the market itself.
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