Commodity investing has been on the mind of many an investor these days, thanks to a recent run-up in prices and the availability of exchange traded funds (ETFs).
One expert says the spot prices don’t matter so much as the long-term trend lines. Does that sound familiar?
According to David Frum on MarketPlace public radio, the spot price is simply what something is trading for at the moment. The overall trend is what truly matters.
The favored hedge of the moment is gold, which has spiked to record prices. To Frum, the record price is a selling indicator. We maintain instead that you can’t fight the trend – when it’s up, it’s up. When it’s heading south, it’s time to employ an exit strategy. (Why gold could go higher).
The markets have seen their fair share of “irrational exuberance” as long as the notion of investing has been around, leading to bubbles. (Keeping your exuberance tempered).
The best defense to fight the possibility of losses is to enter into the market with a strategy. By following a strategy, you can avoid market bubbles, panic selling or herd mentality buying. We watch the 200-day moving average. When a position moves above, we buy; when it drops below, we sell. (Why does trend following make sense?)
For more guidance on building a strategy and implementing it, check out the The ETF Trend Following Playbook for more advice.
For more stories about trend following, visit our trend following category.
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.