Many areas of the markets and their representative exchange traded funds (ETFs) have bounced mightily off their lows (in some cases, by triple digits). So, why are some people still waiting on the sidelines?
Scarred by one of the most brutal stock markets in years, too many investors failed to “pull the trigger” when the current rally began and are missing out on one of the best market recoveries in years, remarks Clif Droke for Safe Haven. Since the March lows, the S&P 500 has rallied almost 50%.
Understandably, investor confidence has been shot. And despite signals that an end to the gloom was nigh (including the crossing of the 200-day moving average for many positions), a great number of investors found themselves simply too scared to act.
This is a shame, and something that a trend-following strategy can help guard against. By having signals in place by which you buy and sell, with enough practice you’ll learn to quiet your emotions.
It’s true that if you get in, the market may whipsaw and you could sell at a loss. But the opposite is also true – you could buy and get in just in time for a long-term uptrend. There are no guarantees, but you do give yourself the opportunity to participate. If it doesn’t work out, the stop loss can help limit the amount you stand to lose.
A strategy alone might not be enough in periods of heightened fear or exuberance. If you’re still finding yourself fearful of getting in when all signals say “yes”:
- Try researching the fundamentals and find support for your position. It may make you feel more confident.
- Tune out the noise – your neighbors, your friends, your television. Tune all of that out and focus just on what the trend lines are telling you. Don’t act based on predictions or opinions.
For more stories on following trends, visit our trend following category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.