The Ultimate Indicator
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
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
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.
the news, inside information, economic and fundamental
data available, is reflected in that closing price.
is the ultimate indicator. Seem too simple? Read on...
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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.
You Need To Know
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.
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.
made no difference what the analysts said, or
what the prevailing sentiment was. The price
was declining so the trend was down."
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.
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.
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.
you had exited your bearish position in Nortel at $60,
or at $50, you would have missed the huge profits still
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
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,
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.
identifies and trades trends. We never miss any trend
because we trade them all. Emotionless, non-discretionary
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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.