As The Market Hits New Highs, Swim With The Tide
By John Persinos
There are two basic approaches to trading: fundamental and technical. In the long run, most traders agree that fundamentals will determine price.
However, as Lord John Maynard Keynes, renowned British economist, famously wrote in 1923: "In the long run, we are all dead."
Keynes's point was that focusing solely on the long-term perspective can be misguided because it ignores immediate issues that need to be addressed. These short-term factors can exert significant effects on people's lives, investments and the economy.
That's why my preferred methodology is a hybrid approach, combining the long-term underlying fundamentals with short-term technical indicators.
In this game called trading, if you can correctly determine the trend, you will make money. Even if your timing is off, if you're correct on the trend, many times the trend will show up to rescue you. If you're wrong on the trend, even if your short-term timing is superb, you'll have trouble making money.
Just as it's easier to swim with the tide than against it, I've found that it's easier to follow the trend than to trade against it (which is what you're doing when trying to pick a top or bottom). The reason: There's only one top and only one bottom and your timing must be nearly perfect when top- or bottom-picking.
The technical and fundamental indicators currently tell us that the market rally has plenty of juice left. Let's take a closer look.
Momentum versus timing…
One of the cardinal rules in investing is to avoid trying to time the market. Investors who attempt to pick the top risk missing out on substantial gains, while those trying to identify the bottom may end up holding depreciating assets longer than necessary. Instead, following the trend allows investors to capitalize on the market's momentum, leveraging the collective wisdom of market participants.
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