A DEFCON System to Manage the Bear Psychology
Safeguarding Against Calling a Top Too Soon
Dear Readers,
Some say the market keeps us guessing…. or instead ask whether the top is in. But with the trend on the chart remaining solid, it’s perfectly reasonable to believe that price will continue upward in that trend. Not until a break of that trend should we begin to ask whether the top is [or was] in.
As they say, ‘the trend is your friend’ but what exactly is the trend you might ask. And so to the following chart:
The first thing to note is its relatively zoomed and without being too far so. The multi-year [not the multi decade] chart provides some perspective while also giving a trend on a larger time frame that effectively negates the shorter-term volatility as is found on the daily charts. It also frames the multi-year cycle that most are interested in. In this sense, it is not zoomed out too far. All things in moderation as they say.
That said, the traders among us [as opposed to the investors], or those looking to take a little profit at the peak, are going to be more interested in a shorter-term time frame that focuses on a more exact peak. First, the recognition or establishment of realities - for all practical purposes, the exact peak is not going to be sold, just as the exact bottom was never bought. One’s expectations should therefore be realistic, and accordingly be focused on doing good enough. [The desire for] perfection is the enemy of good.
A ‘DEFCON’ System
When zooming in on the shorter-term trends as they relate to a possible multi-year top, a degree of alarm could be set as a safeguard, something like a system of DEFCON levels, where 5 is stable and 1 is critical.
For access to full article and archive to previous articles, make sure to subscribe now.