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The more distinctions you can make about market behavior, the more successful you will be as a trader. |
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So the question rapidly becomes: How do you determine what the continuity of thought is? How do you make the distinction about what operating mode the market is in? I will answer this question in a minute. I would like first to tell you a few simple truths (beliefs of mine) about the different trending modes. |
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Let me start with a bull trend. I think the human psyche likes the idea of being a bull. It seems so logical to buy something and then sell it at a later date for a profit. Most beginning traders tend to establish long positions more readily than short positions. In a bull market the bulls are firmly in charge, and the bears are in total disarray. This means that a bull market will exhibit certain consistent characteristics. As you do your research you will observe certain characteristics that lead you to the conclusion that it is a bull market. Like an 800-pound male deer, a bull (market) will leave certain droppings and hints that it is present. |
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If you are an outdoor-type person you no doubt know what deer droppings look like, and you have also observed how the male deer marks certain trees by rubbing off bark with the velvet on his antlers. In the same way, a bull market will leave certain signs behind that you are witnessing a bull market. Deer climbing a mountain will never make a straight path to the summit. The deer will make frequent stops (hesitations), and retrace part of the upward journey (retracements) before resuming their climb to the summit. The critical thing to remember is that when the deer weaken, and retrace part of the upward path, they will often retreat to a lower pinnacle that they previously climbed, and will very rarely retreat beyond their last resting place in the previous valley. A deer will continue to climb the mountain looking for a cooler meadow to rest and eat in to escape the summer heat. The deer will start back down the mountain only if a bear chases him downafter all, bears like those very same meadows. Another reason a deer will go back down the hill is to find shelter in case of an approaching storm. |
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If the bear does in fact show up and chases the deer down the mountain, the bear will exhibit similar characteristics. The interesting thing is what transpires when both the deer and the bear co-exist on the same mountainside. In this case, one or the other will be slightly dominant, and although it will appear that they are moving sideways, they will in fact be moving up or down slightly. I suspect the reason that the bear doesn't |
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