Hong Kong Economic Journal --- Sept 11, 2000

Traders by nature like to pick tops and bottoms. When the market is rising, they are eager to short, and when it is falling, they only want to buy. Theoretically, it makes absolute sense to buy low and sell high? Psychologically, they all want like to feel like hero? by being able to pick the tops and bottoms precisely. However, are they really skillful enough to predict where the exact levels of the tops and bottoms lie? Reality is that 90% of investors end up losing in the market. Most of them lose because they always take an opposing position to the market. They do not ride? with the market. Sometimes they are lucky enough to short at the market top, but once the market does start falling and they are winning, amazingly, many of them then attempt to reverse their positions and buy. Eventually, the market keeps falling and they lose all their money including their original gains, even though they actually predict the market correctly in the first place.

Looking at any historical chart, one will notice that actually most of the time markets are trending. That is, when the market is rising, it will keep rising and when it is falling, it keeps falling. That is why the proverb goes trend is your friend? A trend follower will always ride with the prevailing trend. As such, instead of buy low, sell high? they buy high, sell low? No one can beat the market. The only way to win it is to join it.

Refer to the Modal line chart of EuroYen below. Since its debut, EuroYen has been in a prolonged downtrend. Every time it made a historical low, analysts would come out and urged others to buy. Every time they had reasons to believe that the market had bottomed out. However, the overwhelming market forces surprised them again and again.

Think about this. Imagine that we had kept selling the EuroYen all along since its debut instead of buying it again and again at their temporary historical lows, hadn't our lives be nicer? In fact, since the EuroYen is now at the historical low, so long as we had shorted, no matter which level we had entered the market, we should now be enjoying decent floating gains. The morale: the market can rise and rise, as well as fall and fall. There is nothing called high or low.

In fact, at the present level for EuroYen, there are no ways we can guess the market bottom. There are no previous historical lows for us to gauge. On the contrary, there are plenty of resistance levels above for us to short the currency when price rebounds to them. The figure has indicated how the highest point of several short-term rebound coincides with some previous Modal Points. The figure also indicates how the market resumes the downtrend after breaking the support trendline. Traders should actually use these indicators and tools to sell on rally? instead of always attempting to fish for the market bottom. Unless there are signals which confirm an uptrend, one should only keep going short or least, stay sideways.