As long as habit and routine dictate the pattern of living, new dimensions of the soul will not emerge. --Henry Van Dyke
What makes trading challenging, interesting and lucrative is that the pattern of price action changes and we are constantly surprised. You never know when there might be significant news, a major mood shift, or a stunning rally. But the biggest surprise in this market this year is how consistent the pattern of action has been and for how long.
So far in 2012, we have moved in an almost perfect straight line since mid-December. We had a slight blip to the downside for two days in early March, but you can use a ruler to connect every other day of action this year.
The irony is that the longer the action stays this consistent, the more inclined market players are to look for a change in the pattern. In most other things in a life, the longer a pattern continues, the more likely we expect it to stay that way. In the stock market, the longer a pattern continues, the more predictions we see that everything is about to change.
Traders thrive by navigating the ups and downs of the market, so it isn't too surprising that many keep predicting that we are about to see some variation in the pattern. It has as much to do with hope as it has with knowing that change in market behavior is inevitable.
And that is the dilemma of this market. On one hand, we have amazingly consistent market behavior. On the other hand, we know it won't last forever. The power of a pattern is doing battle with the inevitability of change, and the pattern is winning.
Every morning traders wake up and wonder if today is the day that the pattern finally fails. It has been a bad bet for a very long time, but we can't help but wonder when the action might change.
For me, the best way to deal with this market is to expect the pattern to continue and avoid the top-guessing game, which is irresistible to many. I won't time the turn in the market perfectly, and I might end up being caught with long positions when we finally top out, but I've likely more than made up for any losses with the profits I've earned by riding the trend longer than the top-callers.
We closed weak last night and there's weakness this morning on concerns of a slowdown in China, but we'd be foolish to write off those dip-buyers who have been so tenacious for so long. We have to watch for is a series of failed bounces and less aggressive dip buying. Until that occurs, the way to bet is that the pattern will continue.
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