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 importantly,
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
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
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
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
you had exited your bearish position in Nortel at $60, or at $50, you would
have missed the huge profits still to come.
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.
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 and profitable.
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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.