Reader Dick had a general comment about what goes on in the markets:
How can anyone think that the markets are behaving “normally” now?
There’s High-Frequency Trading providing 80% of the market right now (from computers running in front of “regular” market computers); and ‘too-big to fail’ Investment Banks, including Goldman Sachs, able to pretty much borrow money for free, gamble in the market, keep their profits, and get bailed out if they lose.
How can trend-following and “the little guy” compete against that?
I think Las Vegas is now fairer to its customers.
I certainly can’t disagree with what you said; other readers have expressed similar opinions over the past couple of years.
You could add a host of other items to the menu like government stimulus and bailouts via the wide variety of programs we’ve seen since the crash of 2008. All have contributed in distorting the real economic picture causing the stock market to swing wildly depending on data interpretation.
However, when all is said and done, there is only one reality left at the end of the day. And that is the closing price of a fund/ETF and how it fits into a particular trend or lack thereof—nothing else matters.
To me, that supports the idea of unemotional trend tracking because it cuts out the intra-day market noise. Conditions over the past 7 months have created a sideways pattern, which has done nothing for any investment method focusing on a longer time frame; but it provided opportunities for those who trade short term.
Since the 80s, I have witnessed just about any market condition that you can imagine ranging from high and low interest rates, wars, acts of terrorism, bear markets and the eventual burst of the credit bubble resulting in the crash of 08.
Along the way, following trends has proven to be the only sane way to live with the disasters of the past 20 years. It has not always been a smooth ride, especially during those periods when the markets went sideways and were displaying a similar behavior as we are seeing right now. As I have mentioned before, that is a condition not unlike treading water with the result of going nowhere.
No market condition will last forever and this one will come to an end as well. The question remains as to who will win; the bulls or the bears. That is when the rubber meets the road. Let trend tracking be your guide to making the right investment decision so that you will not get caught on the wrong side of market direction as so many did in 2001 and 2008.