Dancing with the Trend

Shampooing the Market

by Greg Morris

It seems that technical analysts on many of the electronic boards I view occasionally want to be the first to say, “I see a head and shoulders pattern in XYZ.”  All too often when I look at their prognostication, I see that it often does not come close to a head and shoulders pattern.  Too many people are stuck in their software program and don’t read the old classics.  Edwards’ and Magee’s Technical Analysis of Stock Trends, first published in 1948 talks about Important Reversal patterns and specifically spends a number of pages on the Head and Shoulders patterns.  In Read More 

Dancing with the Trend

News is Noise

by Greg Morris

We have Breaking News; but first, we’ll be right back after this message from our sponsor.  Do you find that irritating?  Baiting you with the ubiquitous breaking news anticipation, then launching into a commercial of someone selling gold because the world is coming to an end?  Also, isn’t all news supposed to be breaking?  When they cover it again in 20 minutes, isn’t it then just news, not breaking news?  How about 4 hours later?  Today’s financial media is constantly repeating breaking news.  Guess what, it is just part of the continuous noise they Read More 

Dancing with the Trend

Believable Misinformation

by Greg Morris

When we were young, we learned many things from our parents, older siblings, and teachers.  Most of us generally accepted them as fact and did not bother to check to see if they were in fact true.  Hey, I remember my Father telling me that if a turtle bit me, it would not turn loose until there was thunder.  I guess it worked as I never got my fingers close to a turtle.  And I was always concerned when a black cat crossed my path. Some Things You Might Believe George Washington, our first President cut down a cherry tree when Read More 

Dancing with the Trend

Discipline is Paramount

by Greg Morris

Over the years during hundreds of presentations I stressed that there are three primary components to a solid rules-based model; in my case it was trend following.  First, you need to Measure the market.  This can be a group of indicators designed to show you what the market has been doing recently with the hope (wish, prayer, etc.) that it continues.*  Second, you need a robust set of Rules to tell you exactly how to trade what your measuring tells you.  And finally, and equally as important, you need the Discipline to follow your process all of the time.  Read More 

Dancing with the Trend

Drawdowns and New Highs

by Greg Morris

I’m not sure when I heard this the first time but I’m quite sure it was a long time ago.  “The markets go up most of the time,” or even to be more convincing, “The market goes up 40% of the time.”  I never challenged that until I got into the money management business and had to answer client questions and deal with their often misguided perceptions and misbeliefs.  So, like any good (or even average) engineer, I decided to calculate it.  As always, when feasible I use daily data instead of the “modern finance” norm of monthly data.  I’m going to sound like a Read More