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Getting Under the Surface



Are you bullish or bearish? And what makes you that way?

These are facile questions on the surface. But I believe it's critical to our success to understand what it is beneath the surface that causes us to adopt a market posture. For example, maybe it's a combination of macro data. Or maybe it's based on insider buys and sells. Maybe it's something more deeply rooted. I know some money managers who are bullish by nature. And still others who are naturally bearish.

How do you assimilate your view? Do you look for things to vindicate it? On any given day there are piles and piles of "evidence" that bolster both bullish and bearish postures. In fact, have you ever noticed how often it's the case that the same data point is used as fodder by both bulls and bears? Consequently, if you spend time looking for support for your thesis, then you won't have any trouble finding it. After all, what makes a market is the fact that if you are bearish and want to sell, there is someone on the other side of the trade with an opposite view.

I think of the technically based indicators I use as disproving mechanisms. (More about what they are and how they work in the days and weeks ahead.) Far more important to me than knowing if my posture is correct, is knowing when it is wrong. You know the tired old cliché, it's OK to be wrong, but not OK to stay wrong? All of us will find ourselves on the wrong side of the market at some point. The ability to recognize when you're wrong so you can correct it is what will separate a great trader or investor from an average one.

One thing I'll never suggest is that a technical approach is for everyone. That's one of the reasons I find the debate between fundamentalists and technicians so bizarre. The other reason is that I personally know very successful traders and investors who use vastly different approaches to the market. Also, there's my belief that using fundamentals without technicals, or technicals without fundamentals, is a lot like playing the piano with only one hand.

Sure, you can make some sound come out of the piano with just one hand, but the music is much better when you're playing with both hands.

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