The Most Important Chart To Explain Why Bears Lose Money

By Elliott Wave Trader via

I have spoken about this many times in the past, but the fact is that very few understand our financial markets. While no one is perfect when it comes to being able to identify turning points in the market, I think we all know that there has been a significant increase in that lack of perfection when it comes to the US stock market over the last three years.

You see, many focus on the wrong factors when making decisions about the stock market. While events such as Brexit, Frexit, Grexit, rise in interest rates, cessation of QE, terrorist attacks, Crimea, Trump, Syrian missile attack, North Korea, record hurricane damage in Houston, Florida, and Puerto Rico, quantitative tightening, trade wars, and many more have scared investors into believing the bull market will come to an end, none of these events have even put a dent in this bull market as it has rallied 50% during this period.

At the end of the day, markets are not about events. Markets are purely about mass psychology. When the market runs out of buyers because the great majority is bullish, then we hit a major top. And when the market runs out of sellers because the great majority is bearish, then we hit a major bottom. There’s not much more you really need to understand about the market than that. The more important question is how to gauge that sentiment so you can align your purchasing and selling with those major turning points.

But first you need to understand why you may have been too bearish to enjoy the profits which have been served on a silver platter during the last several years. First, you probably read too many different perspectives, believing that the more information you have then the better decision you will make. Well, how has that helped you if you have been bearish these last three years? Moreover, most people seek some form of confirmation bias, so they pay more attention to bearish articles as compared to bullishly-inclined articles.

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