Here’s another question I received recently. Again, feel free send us any questions you have and keep checking back to see them get answered.
Question: Given your trend-following indicators, you’re not likely to get a buy signal for a few weeks after the bottom. But considering the horrible news, the rally is likely to top around then! How will you prevent your indicators from giving a buy signal at the top of a rally?
Answer: Whoa! This is what I call the curse of preconceived notions. First, no one knows whether the next rally will be a bear market rally, or a new bull market, or just a two-day bounce. Second, no one knows when a buy signal will come; true, it’s never at THE bottom, but sometimes it’s just a few days later, other times, many weeks.
This type of thinking is like the host who, when planning a big function, worries himself sick over every possible thing that could go wrong–too many people, not enough refreshments or food, not enough parking, some people might not show up, etc. He’s looking too far down the road instead of just focusing on what he can control.
While it’s good to be prepared for different scenarios in the market, you shouldn’t go around assuming the next three months or longer are going to happen according to your script. It doesn’t work that way. Just take things day by day, week by week, and you’ll come out much better.