“The public is often right during the trends, but wrong at both ends.”
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That brilliant quote from Humphrey Neill, today’s quote of the day, is an extremely important concept about markets to understand. Specifically regarding UPTRENDS, the public can be right (profitable) for a very long time. But at the big tops/DISTRIBUTION/end of the bull market – they/we? seem to do really dumb things and invariably end up with nothing. Contrary to popular wisdom, it is generally not the “manipulators”/strong hands who drive the TREND higher. It’s mostly the public/weak hands who drive the bull higher. The “manipulators” are the ones who put an end to the UPTREND. And then they are the ones who are instrumental in forming the DISTRIBUTION area, which eventually leads to a DOWNTREND. The “manipulators” will step in at times to either goose the market higher or to slow it down. It’s why we can see TRENDING markets grind higher for weeks or months at a time with very small/weak reactions/selloffs. And it’s why you hear the chirping from folks who know nothing about the true meaning about how volume works (actually price and volume), claiming it’s bearish that the market is rising on pathetic volume. And yet you see the market just keep grinding higher and higher with very little volatility.
It’s because those are mainly weak hands doing most of the transactions. BTW, weak hands can also include big institutional money. I include any one in the weak hands category who would be buying right into a rising market, rather than being patient and “smart” enough to wait for a reaction in price. And in this instance, when you see the volume start to pick up again, it’s actually short term bearish, and potentially longer term bearish if there is also ENDING ACTION showing up. The reason for the pick up in volume is that the “manipulators”/strong hands are coming back into the market and selling/shorting. This is a horrible time to get long. The “manipulators” want to push the market back down so that they can ACCUMULATE. We need to be very patient in markets and just let the markets come to us. If we want to buy something and it doesn’t come to us first, before it takes off again higher, so be it. There are ALWAYS other opportunities. Markets are completely about RISK. Reward is way back in second place. Controlling RISK is our reward. Believe me (as Trump would say).
I have included a daily chart of the SPY. If you would like to go over it with a fine toothed comb (which I’ve done many thousands of times over the years – “believe me”), be my guest. You will find the general tendencies which were discussed above.
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About
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.
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