Don’t Fight The Tape is an old adage on Wall Street that sounds great in theory but is difficult for most people to apply in real-time. Why? Because most people get caught up in the noise (everything else except for the price), have a hard time getting out of their own way, and do not know how to focus on what matters most: The Tape (a.k.a. price action).
It is very easy to buy into the fear. To imagine the worst. To be scared of another vicious bear market, (especially if you have experienced the last few (and violent) bear markets: 1987,1998, 2000-2002 or 2008).
Trust The Tape- Don’t Fight It
One of easiest ways to beat the market is to learn how to trust the tape. I like to say: I trade on what I see happening. Not on what I think will happen. When you learn how markets actually work (yes, pullbacks are normal- and dare I say it- healthy) you will make a subtle and very important shift in your thinking that will do wonders for your bottom line. You will see the forest, not just the trees.
Yesterday, when everyone was worried about the market crashing and said this might become Obama’s Bay of Pigs, Another Cold War, Etc. Etc. I published a bullish note here (MV Buzz and Banter) taking the other side of that trade and said, “Until further evidence develops (more weakness in the major averages), we have to expect this to be another shallow pullback in size (% decline) and scope (days/weeks, not months) within a broader uptrend. Two outcomes: The bulls want to see a short sell-off early in the week to be followed by a recovery and strong rally into Friday’s close. The bears want to see a week-long sell off and a low tick close on Friday. As always, we’ll let the market guide us but remain bullish until more damaging evidence emerges.”
I didn’t have a crystal ball and I don’t need one. Neither do you. All I did was remain objective and trust the tape. So far, the bulls are clearly in control of this market. I have learned the hard way- so you don’t have to – overtime, you will do MUCH BETTER if you learn how to trust the tape and not fight it.