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THE MARKET WHISPERER 12 5

trend, it happens that new traders in our trading room suggest buying or
shorting against the trend. The basis of their suggestion seems logical: “the
stock has dropped enough and therefore must make an upside correction”
or “the stock has gone up and must make a downside correction.” Yet, other
than in very unique cases, this thinking is fundamentally flawed.

Buying a stock on a downward trend, or vice versa, is like swimming
against the current of a surging river: there’s very little chance you will
reach your target, and even if you do, you’ll be exhausted. Occasionally, a
trader who suggested shorting an upward trending stock later draws my
attention to the fact that the stock did indeed drop by so many dollars.
I am happy to congratulate his or her success, but also add my generic
response, “I guarantee that if you do this ten times, you will fail in at least
seven of them.” I have spent sufficient years and gained enough experience
to guess when a stock is changing its trend, and now am able to relate how
I failed in the majority of instances. Don’t try it. It’s a waste of your time
and money.

Trading with the trend allows me to long (buy) strong stocks that are
rising and short weak stocks that are dropping. In this way, I preserve
the advantage of the trend, and increase my chances of success. Trading
against the trend reduces chances of success and misses opportunities in
other stocks which are moving in the trend direction.

In Memories of a Wall Street Analyst, the book’s protagonist Larry
Livingstone talks about an old man named Partridge, who had years
of stock trading experience. When untrained traders asked his advice
about specific stocks, he would authoritatively repeat the exact same
answer, “You know, we’re in a bull market!” Old Partridge understood and
internalized something that even veteran, let alone young traders have
trouble understanding: full advantage should be taken of trading with the
trend. As long as the market is rising and the stock you bought maintains
its upward trend, or as I often say in the trading room, “has done nothing
wrong,” don’t sell it! The same is true when shorting stocks when the
market is trending down.

At the start of the school year, I attended a parents’ meeting at my
daughter’s school. Before leaving home, I traded and joined up with my
trading colleagues in the trading room. When it came time to leave, I placed
protective stop orders into the trading platform. On returning some three
hours later, I noticed that the balance in my trading account had risen
considerably. The trend did its work and the stocks continued moving. The
conclusion is obvious: as long as a stock “does nothing wrong,” don’t touch