Page 126 - THE MARKET WHISPERER

124 PART 5 - Principles O f Technical Analysis

The Trend

We have already mentioned that prices move in three directions: up,
down, or forward. The market does not move backwards, because time
does not move backwards. The market’s directional movement is called
its “trend.” When the market rises over a period of time, we call this the
uptrend; dropping over a period of time is called downtrend, and when
it “moves sideways” with insignificant deviations, it is called a trendless
market. It is easy to profit when there is a trend, and very difficult when
the market has no trend. Generally, those who make money in a trendless
market are the brokers who profit from commissions.

Famous Clichés and Trading with the Trend

Several famous clichés are tied to the capital market: “When it rains,
everyone gets wet,” and “Only when the tide goes out do you discover
who’s been swimming naked,” and “Buy the rumor, sell the news.”

But one important cliché describes the most important rule in trading:
The Trend is Your Friend.

What does this mean? Trade in the direction of the trend, and only in
the direction of the trend. Accompany it and actualize it as long as there
are no signs of its ending. The more careful you are about integrating
trends, as will be explained later, the better off you will be. The perfect
trade occurs when I buy a stock with a clear trend, the sector in which the
company operates shows an identical trend, and the overall market shows
the same trend.

SMART In actuality, you will try to convince yourselves that “just
MONEY this once” you will buy contrary to the trend. After all, it “has
dropped far enough” and “must” go up…

Even though I always teach my students to trade in the direction of the