Nobody knows what the markets will do over the coming weeks or months - I've seen two headlines this week with 'Analysts' calling for the Dow to end the year either at 17,000 or 11,000. As Ed Seykota famously said "I don't predict a non-existing future". All we know is that, at some point, there will be a market downtrend, and even then, no-one will be able to predict the magnitude or speed of it. Could be next week, could be in two years time...
When there is a clear market uptrend such as now, then systems such as trend following tend to be overlooked as a method for making money. The BIG advantages that a trend following system has is that:
- It will give you clear signals when to get out of a stock or market, when price is trying to reverse trend;
- It can also give you the opportunity to make money when the markets are trending downwards;
- It will only give you signals to re-enter on the long side when the trend is trying to reverse (no attempt to pick a market bottom).