I suggest you learn the difference between "new highs" and "tops". Tops do not continue higher. That should be self-evident. Yes, one should be an informed trader.
Palmbeach, You can only tell the difference between a "new high" and a "top", AFTER the fact, right? I think that is the point jack is making.
Very good points. The desire to be right is stronger in most people/traders, than the desire to make money in my view.
Sorry, the term is probably too limited for searching under trading. Here are four starters for you: Velez, Shannon, Turner and Person. You will find that these guys are pushing the technique, in part, because it is easy and they are trying to "educate" primarily. Vendors pull people into their domain by illustrating how to leave FA and broker oriented investing. One of the most basic ways to shift the person is to go to quality and to a simple market movement test. O'Neil suggests it in How to Make Money in Stocks and also in 24 Essential Lessons for Investment Success. Draw a zigzag line of price from the lower left to the upper right on a sheet of paper. This is the price path of a quality stock. For each peak draw a line forward to the next place price reaches this prior top. This is a place where the above six references suggest adding shares to the position. The shares are added because "clear air" is showing to the left, meaning price is in a new and better territory above where it has been before. Thus "clear air". As you read these people you will other accompanying strategies. This thread is discussing the most conservative one. The OP has posted a myth he has found somewhere. He probably is only thinking of when the last cycle of price increase comes to the R of the envelope in which the "trend" trading above cited takes place. What can happen to people who are leaving investing and going to trading, is that they continue to learn more about trading and then go from this beginner level to higher money velocity levels of trading. I have an interest in getting people to these higher levels because they, then, can prehaps get interested in volumteering their skills for "social investing". Again doing a search on that will lead to about nothing in trading since it is not generally a possibility for marginal types of people. Suffice to say that if people were skilled investors and traders, then they ould be helpful to others in poverty and help those people end their poverty. Right now all the stocks and bonds in toto are less than the current entitlements owed to payees in the US. Taxing, therefore, will not work in the future. When the US went into unsustainable futures it creatd problems for young people. Those people will have to be helped by skilled investors and traders as the future unfolds and the middle class disappears more and more. It is clear that models for this have to be stablished ASAP; that is the only reason I am posting the above. To separate the wheat from the chaff. Recently I had to delete a post becuase it would cause too many questions to be asked. ET does not want excessve hits in places where people gather.
Jack, your post is too long for my tastes. Condense it down and I will commit some time to read it as it may have some interesting information. Thanks.
If you have a friend who always buys tops and sells bottoms, just start doing the opposite of him (short when he buys, cover when he sells) and you'll be rolling in the dough. Of course, you should give him a percentage of your winnings since he is, technically, your advisor.
It is impossible (or at least extremely unlikely) to always buy tops and sell bottoms. Anyone doing that would quickly turn billionaire by doing the opposite trades. Seriously, the fact is, the vast majority of traders have around 50% winners in their track record, the difference between being a long term winners or losers comes down to how each group manages her bankroll. That said, the "buy tops" stigma is only in the trader's mind, and relates with lack of self confidence, poor management skills and lack of discipline. Unfortunately, the trader's worst enemy is her own alter ego.
It is not called a "top" until "after the fact". Until then, it is a new high. That is the point I am making. This is more than just semantics.
for that matter, why do losing traders short non tops? why do losing traders buy non-bottoms? why do you park in a driveway, but drive on a parkway?