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Thanks for feedback. Am trying out to see which size is best.
Good posts! BTW, can you post in a larger font next time? :)
Q: When will we know for certain that we have seen a market top?
Bob Prechter: For certain? When it's too late to act!
Q: If you don't know until it's too late, should traders try to pick tops?
Bob Prechter: By all means, yes. Waiting for certainty means waiting long enough to miss it.
Q: What are some characteristics of a major market bottom?
Bob Prechter: General despair. Investors completely give up. Sometimes you even begin to hear arguments as to why that market really has no reason to exist. For instance, in 1932, people said capitalism was dead, stocks were dead, and they'd never go up again. We had that situation in gold in 1971, when the government decontrolled it. Several economists came out and said that as soon as they took off the price controls at $35 an ounce, gold would drop to $6 an ounce because it had no industrial utility.
Q: The market is an amazing beast. It even manages to do damage on the way up. Richard Russell has said that the "diabolical objective of bull markets is to advance as far as possible without any people getting in." The opposite is apparently true in bear markets.
Bob Prechter: Exactly. It's the old story. Bull markets climb a Wall of Worry. I made up a parallel maxim: bear markets slide down a Slope of Hope.
Q: Let's say you could dissect the average investor's stock portfolio over the course of a full cycle. What would it reveal?
Bob Prechter: More than 75 years ago, Don Guyon, the pseudonymous author of One Way Pockets, wanted to discover why his clients always lost money in a complete bull-bear cycle. It might be argued, he reasoned, that, at worst, they should have broken even, since at the end, prices were back to where they were at the start. He found that the answer lay in the clients' temporal orientation to the market's future. At the beginning of a bull market, he found all his clients were traders. At the top, they were all "investors." This is not only precisely the opposite of the correct orientation for making money, but also entirely natural for human beings and a key reason why the market repeatedly behaves as it does.
Bob Prechter: More than 75 years ago, Don Guyon, the pseudonymous author of One Way Pockets, wanted to discover why his clients always lost money in a complete bull-bear cycle. It might be argued, he reasoned, that, at worst, they should have broken even, since at the end, prices were back to where they were at the start. He found that the answer lay in the clients' temporal orientation to the market's future. At the beginning of a bull market, he found all his clients were traders. At the top, they were all "investors." This is not only precisely the opposite of the correct orientation for making money, but also entirely natural for human beings and a key reason why the market repeatedly behaves as it does.
Q: What about so-called typical investors?
Bob Prechter: So-called typical investors just don't make money for long. They get interested in the markets at the top of every bull trend, and they get scared out at bottoms. The short-term traders lose even faster. They're sending 2% or 3% of their accounts to the brokerage industry in commissions every week or so. How long can you survive that without a good rate of market success? Since people's hopes and fears are the engine of the market ? their hopes make it go up and their fears make it go down ? the result is that most people must lose money. It is their fears that make them sell near bottoms and their hopes that make them buy near tops.
Bob Prechter: So-called typical investors just don't make money for long. They get interested in the markets at the top of every bull trend, and they get scared out at bottoms. The short-term traders lose even faster. They're sending 2% or 3% of their accounts to the brokerage industry in commissions every week or so. How long can you survive that without a good rate of market success? Since people's hopes and fears are the engine of the market ? their hopes make it go up and their fears make it go down ? the result is that most people must lose money. It is their fears that make them sell near bottoms and their hopes that make them buy near tops.