I really don’t know how I would make sense of everything if I did not have the resolute believe spelled out in The Dow Theory, Fraser Publishing Company, 1993, that “the averages (markets) discount everything”.  To quote: “The fluctuations of the daily closing prices…afford a composite index of all the hopes, disappointments, and knowledge of everyone who knows anything of financial matters, and for that reason the effects of coming events (excluding acts of God) are always properly anticipated in their movement”.   

After 30 years of being around markets – I started as a runner on the floor of the Chicago Board of Trade at the age of 17 in 1980 – I know that tenet to be true. My interpretation is: the price pattern on the chart is an absolute reflection of everything known naturally, socio-politically, and economically about that market. Or in the words of the esteemed oil market analyst and author Cynthia Kase: “The chart tells us everything the market knows about itself”.  What this mean for you is: trust price! Do not worry that something is going to drastically change a market’s long-term trend overnight. While markets will certainly continue to go up and down, because they are manic in nature, and influenced by the pursuit of money, which carries as much, if not more, emotional baggage as matters of the heart and loins, there is a predictability in that. If you have identified a long-term trend in a market, and you know that price action tends toward disequilibrium – i.e.: price goes up and down, a lot – then wait for such a manic move counter to the predominate price pattern that nature, society and commerce has established, and buy that dip, or sell that rally, place your stop, and be assured the system can work for you, and not against.

Yes there will come a time when markets top out, or bottom, and trends reverse, and you need to know that as long as you are aware of a market’s simple pattern of highs and lows, that you will know of that turn the same time as everyone else who has an interest in that markets does.

Jay Norris is the author of Mastering Trade Selection & Management, McGraw-Hill, 2011.

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