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Jim
Wyckoff Asks, "Do You Wanna Fight?"
By
Jim Wyckoff
I
was busy Friday morning writing my "Glance at the Markets"
feature for financials, when I got an email from a trader. He said
he was bullish coffee and wanted to go long. All morning long, it
seemed, trader emails had been popping up on my computer screen--and
many were advocating playing the long side of markets these traders
perceived as being at a price low enough to be a "bargain
buy." Among my emails Friday morning, another trader was
bullish gold, and still another was bullish wheat; another bullish
cocoa.
That's
when I decided to put away the "Glance" feature and
instead write about the perils of "fighting the tape"
(trend) in markets. Think about it: Do traders really want to fight
the market? Remember, only the markets are ALWAYS right. No one
else.
Traders
many times think like consumer shoppers think: "I need to buy
at bargain-basement prices to get the very best deal." (My
wonderful wife many times comes home with a bag full of clothes,
saying, "Honey, I just couldn't pass up these bargains; I just
had to buy them.") Unfortunately, when trading futures markets
(or stocks), thinking like a consumer shopper is unwise and
unprofitable. I think one of the major mistakes most traders make is
trying to "bargain hunt" and go long a market (or a stock)
that he or she perceives as being "low-priced."
The
same is true for trying to sell (go short) a market at perceived
high prices. Crude oil is a good example here. All this year, the
trading landscape has been littered with the carcasses of traders
trying to pick a top in crude oil. These top-pickers have so far
been brutalized by the market--which is always right.
Don't
fight the tape. If the general market trend is one way, do not
trade against it. In my "Top 10" trading rules list, rule
No.1 is: Are the daily, weekly and monthly charts all in agreement
on trend? If I'm thinking about position-trading a market and the
aforementioned charts are not in agreement on trend, I'll likely
pass on the trade. And I certainly won't initiate a position trade
that is against the overall trends shown on the charts.
Some
traders may prudently ask, "What about "contrary
opinion" trading and the Commitments of Traders (COT) reports
showing commercials buying in downtrends? Well, I cannot argue that
contrary thinking and trading is valid and is employed successfully
by some traders. I have used contrary thinking and trading, myself.
But I think that type of trading method is an exception and not the
rule, regarding becoming a successful trader. It's a bit like a
winning football team with a very good running attack. Their running
game makes them a winning team, but they occasionally sprinkle in a
pass here and there to keep the defense honest. Also, commercial
traders (the big boys in the business) most times seem to be on the
right side of the market. However, we as individual traders do not
have the resources (research staff, worldwide connections, very deep
pockets, etc.) that the commercials enjoy.
Also,
when good market trends get underway, even though trend traders
don't "catch the bottom" (or the top), there is usually
plenty of distance for the market to run to allow good profits to
accrue.
So,
if there are traders out there in cyberspace that really do want to
fight the tape (the market), drop me an email before you take on
this behemoth. In a quick sentence or two, I'll give you my honest
opinion. I really do enjoy hearing from all my readers worldwide.
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