Page 131 - THE MARKET WHISPERER
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THE MARKET WHISPERER 12 9
Joy Global maintained an uptrend for almost three months, rising from
a price of $44 to a peak of $64. Notice the four rising lows and the three
rising highs before the stock changed direction, broke the previous low
and dropped to a new low. If you had been holding the stock, where in your
view should your exit point have been? The correct answer is the trend’s
break point: that is, the drop below the last high’s low, beneath the $58
mark.
Until now, I’ve explained why it is so very important to trade with
the trend, and so important to utilize it fully. (Never forget that!) I also
explained the three market trends, but I have not explained what these
mean from the trader’s viewpoint.
Think for a moment: what does the trader always wish to know?
• A trader always wants to know the ratio of buyers to sellers: in other
words, which of these two opposing groups is winning the endless tug-
of-war.
• When buyers are winning, we see uptrends.
• When sellers are winning, we see downtrends.
• When there is balance between buyers and sellers, the stock will move
sideways, with slight upward and downward movements but no real
trend.
What do professional traders do with this information?
• They will want to buy (long) when the buyers are winning: that is, when
the stock is rising.
• Thy will want to sell short when the sellers are winning: that is, when
the stock price is dropping.
• Sideways movement is dangerous: on one hand, the stock is moving in
a range that does not allow for making any profit.On the other hand, a
small pull on the rope in favor of one of the sides can lead to losses.
This is why pro traders do not trade during sideways movement, but
wait for a clear up or downtrend. Avoiding any action is sometimes the
best step to take. Over time, you’ll discover that during sideways markets,
you will do better when you do nothing! If market conditions do not allow
joining a clear trend, don’t join. In other words, not joining means not
losing money. This will be discussed further.
