The Market Is Never Wrong

Steve Nison on "market is never wrong"

"One of my non candlestick seminars is called the "Techniques of Disciplined Trading Using Technical Analysis." In it, I discuss the importance of a disciplined approach to trading. To convey this idea, I use the word "discipline" as an anagram. For each letter of the word DISCIPLINE I offer a trading rule. For the letter N my rule is "Never trade in the belief the market is wrong.

What do I mean by the expression, "the market is never wrong?" It means do not try to impose your beliefs on the market. For example, if you are firmly convinced crude oil is going to rally, wait until the trend is heading north before buying. Say crude oil is in a bear market. If you buy in the expectation that a bull market will materialize, you are then trying to impose your hopes and expectations on the market. You are fighting the trend. This could be disastrous. You may ultimately be correct in your bullish viewpoint, but by then it may be too late.

As an analogy, imagine you are driving along a one-way street. You notice a steamroller going down this one-way street the wrong way. You stop your car, take out a sign (that you always carry with you) that reads, "Stop, Wrong Way!" and hold it in front of the steamroller. You know the steamroller is going in the wrong direction. But the driver may not see you in time. By the time the steamroller turns around, it could be too late. By then you may be part of the pavement.

So it is with the markets. If you are bucking the trend, your outlook may turn out to be correct. But by then it may be too late. Margin calls in futures may force you out of the position before your expected move occurs. Or, worse, in the end, you may be right, but by then you could be broke.

Do not try to impose your will on the markets. Be a trend follower, not a trend predictor. If you are bullish, jump onto up trends, if bearish, hop onto downtrends. one of the Japanese books I had translated expresses this idea almost poetically, "buying or selling from the beginning without knowing the character of the market is the same nonsense as a literary man talking about weapons. When faced with a large bull or bear market they are sure to lose the castle; what seems safe is infinitely dangerous. . . . Waiting for just the right moment is virtuous and essential."