Email (some redacted or edited)...
I think looking at the market too closely is a common trait, I often call it "Getting lost in the lines" and those of us who watch every second of the market every day can easily fall victim to it.
Some of you know I've spent years backtesting just about every trading system ever published in a book and have created hundreds of my own in an effort to take myself (my emotions) out of the trade and adhere to a system, objectivity! I never found a single system that was robust enough to hold up through the 4 different stages of the market on a primary trend basis except for 1 moving average system that only has about 1-2 trades a year, but I found that the drawdown periods were so intense that emotionally, I doubt anyone could stick to the rules, but if they could, that system performed beautifully in every market with fantastic returns, it's just when we are in the moment we override it.
"EVERY FIGHTER HAS A FIGHT PLAN UNTIL THE FIRST PUNCH LANDS"
We look too closely at the market and I understand why, we are worried about our positions and you want them to finally get going, but you still have to look at the market as objectively as possible.
I studied past market tops and flipped through them 1-day at a time as if I didn't know what the next day would bring and I'd try to put myself in the emotional moment of that day and then the next, it's one of the hardest things to do because you already know how it ended, but if you can do that, then you have a lot more perspective of what is normal, what is not, how long things actually take, how some price movements are totally meaningless, although they may feel like the end of the world at the time.
I taught technical analysis to a class of 50+ people every quarter for our community school system's adult education for almost 4 years and this BY FAR, except maybe Dow Theory, was the hardest thing to teach, to learn from the past by putting yourself in the emotional moment of an event that already transpired, but the students that were able to do that really had a strong perspective and understood things like the reversal process, or how when a market first breaks you can have a 2 or 3% drop, sometimes more that can take out 3-4 months of longs, sometimes a 3--5 day drop, sometimes even several weeks that makes a -20% correction that the media calls a bear market and then there might be a strong rally (Bear market rallies are something else to watch and trade, some of my favorites) that really is meaningless like it was in 1929's crash, but the first bear market rally lasted about 5 months and made about 50%, most people look back at that crash and don't see that, but if you were able to put yourself in the emotional moment of a market break after 8 years of rally and then a 5 month rally that made 50%, most traders were bullish again and figured the initial break was just a passing event, it was not.
My point is, very few people would be able to see that for what it was and would have been driven back to the long side in what was a tradable, but meaningless rally. These are important lessons. Or the fact that a bear market has just about as many up days as down days so people are confused and don't realize where they are in the market, this is why I talk so much about the stages, because it doesn't matter if there's a rally from here, we are still in the last stage and the end part of it before a bear market, but if you don't know where you are, you don't know where you are going.
Take a look at the three Dow charts from 1929 that I provided, look at the first one and think about whether you think you could have rode that bear trend or not, then look at the second one and see what happened and if you think you could have ridden the bear trend because from a trend point of view, there was NEVER any reason to be anything but short, but emotionally things change how we see the market and trade.I highlighted the rally I mentioned on the second chart. See if you see those two charts differently now that you know what happened.
At #1 the initial 3 month break lost -50%, yeah, some people actually did commit suicide.
However at #2, what looks like a bounce was actually a strong 5 month counter trend rally that made +52%... might you think that the previous break was an anomaly, especially after years of a massive bull market? As a trend trader there's no reason to be anything but short, but could you sit in a market that is rising nearly every day (or so it feels) for 5 months with a large 52% gain? These are the things people have a hard time seeing and more so putting themselves in the emotional moment, thinking about how they'd react.
At #3 the Dow gave up an incredible -89%, those who invested in 1921 would have lost -37% on a buy and hold.
There were 5 counter trend rallies during this bear market, might you think the market retraced more than enough after the first 2 or after a 50% decline?
It's easy to look at these charts, it's hard to take away the important lessons because...
As a trend trader...
There's no reason to be anything but short through this entire trend, this is all lower lows and lower highs except for one period where it was somewhat consolidative, but NEVER made a higher high/higher low.
This is part of the reason I have spent so much time recently defining the 4 stages of a trend and where we are in each one.
Just food for thought...
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