The New York Times caught our attention with a “feeling blue about the market” article.
The above article offers:
I’m shocked at the level of apathy — perhaps even pessimism — about the market, given the current environment for stocks…The public has this thing really, really wrong. The dollar rallied when it wasn’t supposed to…bonds rallied when they weren’t supposed to. All eyes are on the Fed…and how far they are going to go and how long it’s going to take them to get there.
Our thoughts:
- Why does the mainstream press focus only on one market — the broad stock market index? The great traders don’t do that. Why should you?
- You can’t predict the dollar’s direction. So why was it supposed to do anything?
- You can’t predict bond directions. So why was it supposed to do anything?
- Great traders don’t watch and make decisions off the Fed. Great traders watch and make decisions off market price movements.
What These Four Points Actually Mean
Each of those four responses cuts through a different layer of the conventional financial media framework, and together they describe exactly why that framework consistently fails the people who follow it.
The first point is about diversification and scope. The financial press is obsessed with the S&P 500. It is the default barometer, the number that anchors every market conversation, the figure that determines whether people feel good or bad about their financial lives. But the S&P 500 is one market. Great traders operate across dozens of markets simultaneously: currencies, bonds, commodities, energy, metals, equity indices across multiple countries. The narrow focus on one index creates a blind spot to every trend that is developing everywhere else. When equities are flat or falling, currencies may be trending strongly. When bonds are moving, commodities may be setting up. A trend following approach captures opportunity wherever it appears, not just in the market the news happens to be covering today.
The second and third points make the same argument about prediction. The dollar rallied when it wasn’t supposed to. Bonds rallied when they weren’t supposed to. The implicit assumption in that framing is that there exists some legitimate framework for knowing what these markets are “supposed” to do, and that the markets failed to comply with that framework. But no such framework exists. The dollar moves because of the aggregate buying and selling decisions of every participant in the currency market. Those decisions incorporate information, sentiment, positioning, and unexpected events in real time. No analyst, model, or consensus view can reliably predict the outcome of that process. The surprise is not that the dollar or bonds moved unexpectedly. The surprise is that anyone expected the prediction to hold.
Trend following solves this by abandoning prediction entirely. The system has no opinion about where the dollar or bonds should go. It observes where they are going and responds accordingly. If the dollar is trending up, the system captures the move. If it reverses, the system exits. No forecast was required, no surprise is possible, and no apathy or pessimism about what the market was “supposed” to do has any bearing on the outcome. More on why price is the only input that matters here.
The fourth point about the Fed is perhaps the most important for the current era. Financial media devotes enormous resources to Federal Reserve watching: parsing statements, counting votes, modeling rate paths, predicting policy pivots. Traders build entire frameworks around anticipating what the Fed will do next. Great traders do not. They watch price. If a Fed decision causes a price movement that triggers a trend following signal, the system responds to the price movement. The Fed’s intention, the market’s expectation, and the analyst’s forecast are all irrelevant. Only the price matters, and the price already knows everything the Fed has done. For the full framework behind this reactive approach, see the TurtleTrader rules and the broader TurtleTrader story.
Frequently Asked Questions
Why do great traders not focus only on the stock market index?
Because the stock market index is one market among hundreds. Great traders diversify across currencies, bonds, commodities, energy, metals, and global equity indices. Opportunity appears wherever trends develop, not only in the market the mainstream press happens to be covering. Limiting focus to one index means missing every trend developing everywhere else.
Why can’t you predict the dollar’s or bonds’ direction?
Because their prices are determined by the aggregate decisions of millions of participants incorporating information, sentiment, and unexpected events in real time. No model or consensus view can reliably predict the outcome of that process. When the dollar or bonds move in an unexpected direction, the surprise belongs to the prediction, not to the market. The market did exactly what it did. The prediction was wrong.
Why don’t great traders make decisions based on the Fed?
Because the Fed’s intentions and the market’s expectations of Fed policy are already embedded in prices before any announcement. Great traders watch price movements directly. If a Fed decision causes a price move that triggers a signal, the system responds to the signal. The Fed itself is irrelevant to the decision. What matters is what the price is doing right now.
What is wrong with feeling pessimistic or apathetic about “the market”?
It assumes that “the market” means the broad stock index, and that a difficult environment for stocks means a difficult environment for all trading. Trend followers have no such assumption. They trade in the direction of whatever is moving, long or short, across any market. A pessimistic environment for stocks may be an excellent environment for short positions, for commodity trends, or for currency moves. Emotional reactions to one index are irrelevant to a systematic approach that operates across many markets in both directions.
Trend Following Systems
Want to learn more and start trading trend following systems? Start here.
