There's a quote from legendary investor John Templeton that goes like this:
"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."
This is contrarian, of course, but there's also a lot to it if we try to unwrap it. But first I want to start off even broader than that. I try to often remind myself of just how uncertain the future is and just how pointless it is to try to predict. It can be hard, to be sure, especially if you're around the business of speculation. But, spend a long enough time and see enough 'sure things' turn out to be disappointments or backfires, and I think it becomes a bit simpler.
I don't look at analysis as predictive. I look at it as probabilistic. But even then those probabilities will have a degree of uncertainty because that future will always be vulnerable for some type of surprise. My aim instead is to seek out the prospect of asymmetry; ways to risk a dollar in order to make two, or possibly three.
In analysis, I largely lean technical because I tend to think that most of the 'known knowns' get priced-in fairly quickly and pretty well. Perhaps there is some edge in there somewhere, but my information flow isn't great enough to allow me to have an inside angle against investment banks. While I do think that fundamentals get priced-in fairly well I do not think that markets are perfectly efficient as there is a clear process of price discovery. The chart, however, is a pretty clear depiction of where price has moved and I don't need to concern myself as much for the reasons as to 'why,' if I can focus enough on the 'what.'
I think there are two tenets of technical analysis that are of importance: A) Trends exist, and there's often a reason for them. and B) Support and Resistance can mark inflection points in a market, because trends do not price in linearly. It's the higher-lows that show you bulls' response to pullbacks and that's what really allows for that next higher-high to show up. It's a clear illustration of shifting sentiment, shown perfectly on the chart.
And this is what takes us back to that quote from Mr. John Templeton...
It's when price is forming those highs that we tend to get most excited. Because we can see it - visually - with our own eyes, that trend or bias showing up in real-time. This is when we might get FOMO coursing through us, compelling us to buy even if it doesn't seem smart, even if we haven't thought about 'what if,' even if we haven't entertained the very rational idea that 'this may not last forever.'
It's just part of the human condition, really, and it's why a lot of retail traders end up buying tops as they let their excitement get the better of them.
Now, Mr. Templeton said the best time to buy is the time of maximum pessimism and that leans very contrarian. And taken to an extreme, this can be an excuse to fade every move that shows up or every breakout that takes place, and that can be a painful way to go about matters. But, there may be a way to hedge that statement in a trend-riding basis as saying the optimal time to establish longs is when the prospect of a reversal has started to rise. Or, to put otherwise, it's when that excitement isn't coursing on a fresh breakout; and instead, after a pullback that has shown that the trend is not infallible. It's when the uber bulls couldn't imagine anything other than continued rip in the trend grow silent, instead fearing that they may get caught holding longs from a top.
In gold the market has been ripping higher for more than a year. But when it seemed most quiet was when it was most opportunistic, such as the bull pennant that brewed in Q4, or the pullbacks that have shown up along the way. We had one of those a couple of weeks ago and it started to seem as though a larger reversal could take hold. But - a clean support hold at 2956 was followed by a doji on the daily chart - and then bulls crowded back in to rush up to another fresh all-time-high.
Again, on Monday of this week another pullback showed up, this time a slighter move with price tilting down to 3200. But bulls responded in a big way and then ran another fresh all-time-high just a day later.
Now, eventually one of these pullbacks could extend and turn into a multi-week or perhaps even multi-month type of event, similar to the Q4 triangle that made up the pennant. But, at this stage that bullish trend that has taken on a parabolic nature continues to press and there's no indication yet that it's over.
There remains support potential and this can be followed for pullback setups. The closest zone is the 3245-3250 area, and if this price comes into play and bulls come in to hold lows around that prior resistance, this could be an illustration of a building higher-low. Below that, 3150-3167 is of interest, as this was resistance earlier in April and, to date, hasn't shown much for support. And below that, there's 3050-3057 which was a point of resistance that also hasn't yet shown as support.
Even the 3k handle can be considered as the April lows rest around the spot of prior resistance, from the March highs, at 2956.
With a trend that's been this one-sided there's a lot of room for possible profit taking; but it's not until there's been a clearer shift of sentiment that we can say that the trend is dead.
Does this mean that we'll be able to predict anything? Because the trick of Mr. Templeton's quote is that predicting 'maximum pessimism' or 'maximum optimism' is just as pointless as trying to predict price. Because it is price itself that will denominate that sentiment! If price continues to tank then, yeah, people are going to get more and more pessimistic and that does not mean that it's automatically a great time to buy (nor sell)!
No, but waiting for pullbacks in clear trends is a way to take a risk-efficient approach towards speculation, while trying to keep our own emotions in check and allowing for us to stick to a plan. Which, for a trader, is one of the more pragmatic ways that one can go about the endeavor of speculation.
James Stanley
"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."
This is contrarian, of course, but there's also a lot to it if we try to unwrap it. But first I want to start off even broader than that. I try to often remind myself of just how uncertain the future is and just how pointless it is to try to predict. It can be hard, to be sure, especially if you're around the business of speculation. But, spend a long enough time and see enough 'sure things' turn out to be disappointments or backfires, and I think it becomes a bit simpler.
I don't look at analysis as predictive. I look at it as probabilistic. But even then those probabilities will have a degree of uncertainty because that future will always be vulnerable for some type of surprise. My aim instead is to seek out the prospect of asymmetry; ways to risk a dollar in order to make two, or possibly three.
In analysis, I largely lean technical because I tend to think that most of the 'known knowns' get priced-in fairly quickly and pretty well. Perhaps there is some edge in there somewhere, but my information flow isn't great enough to allow me to have an inside angle against investment banks. While I do think that fundamentals get priced-in fairly well I do not think that markets are perfectly efficient as there is a clear process of price discovery. The chart, however, is a pretty clear depiction of where price has moved and I don't need to concern myself as much for the reasons as to 'why,' if I can focus enough on the 'what.'
I think there are two tenets of technical analysis that are of importance: A) Trends exist, and there's often a reason for them. and B) Support and Resistance can mark inflection points in a market, because trends do not price in linearly. It's the higher-lows that show you bulls' response to pullbacks and that's what really allows for that next higher-high to show up. It's a clear illustration of shifting sentiment, shown perfectly on the chart.
And this is what takes us back to that quote from Mr. John Templeton...
It's when price is forming those highs that we tend to get most excited. Because we can see it - visually - with our own eyes, that trend or bias showing up in real-time. This is when we might get FOMO coursing through us, compelling us to buy even if it doesn't seem smart, even if we haven't thought about 'what if,' even if we haven't entertained the very rational idea that 'this may not last forever.'
It's just part of the human condition, really, and it's why a lot of retail traders end up buying tops as they let their excitement get the better of them.
Now, Mr. Templeton said the best time to buy is the time of maximum pessimism and that leans very contrarian. And taken to an extreme, this can be an excuse to fade every move that shows up or every breakout that takes place, and that can be a painful way to go about matters. But, there may be a way to hedge that statement in a trend-riding basis as saying the optimal time to establish longs is when the prospect of a reversal has started to rise. Or, to put otherwise, it's when that excitement isn't coursing on a fresh breakout; and instead, after a pullback that has shown that the trend is not infallible. It's when the uber bulls couldn't imagine anything other than continued rip in the trend grow silent, instead fearing that they may get caught holding longs from a top.
In gold the market has been ripping higher for more than a year. But when it seemed most quiet was when it was most opportunistic, such as the bull pennant that brewed in Q4, or the pullbacks that have shown up along the way. We had one of those a couple of weeks ago and it started to seem as though a larger reversal could take hold. But - a clean support hold at 2956 was followed by a doji on the daily chart - and then bulls crowded back in to rush up to another fresh all-time-high.
Again, on Monday of this week another pullback showed up, this time a slighter move with price tilting down to 3200. But bulls responded in a big way and then ran another fresh all-time-high just a day later.
Now, eventually one of these pullbacks could extend and turn into a multi-week or perhaps even multi-month type of event, similar to the Q4 triangle that made up the pennant. But, at this stage that bullish trend that has taken on a parabolic nature continues to press and there's no indication yet that it's over.
There remains support potential and this can be followed for pullback setups. The closest zone is the 3245-3250 area, and if this price comes into play and bulls come in to hold lows around that prior resistance, this could be an illustration of a building higher-low. Below that, 3150-3167 is of interest, as this was resistance earlier in April and, to date, hasn't shown much for support. And below that, there's 3050-3057 which was a point of resistance that also hasn't yet shown as support.
Even the 3k handle can be considered as the April lows rest around the spot of prior resistance, from the March highs, at 2956.
With a trend that's been this one-sided there's a lot of room for possible profit taking; but it's not until there's been a clearer shift of sentiment that we can say that the trend is dead.
Does this mean that we'll be able to predict anything? Because the trick of Mr. Templeton's quote is that predicting 'maximum pessimism' or 'maximum optimism' is just as pointless as trying to predict price. Because it is price itself that will denominate that sentiment! If price continues to tank then, yeah, people are going to get more and more pessimistic and that does not mean that it's automatically a great time to buy (nor sell)!
No, but waiting for pullbacks in clear trends is a way to take a risk-efficient approach towards speculation, while trying to keep our own emotions in check and allowing for us to stick to a plan. Which, for a trader, is one of the more pragmatic ways that one can go about the endeavor of speculation.
James Stanley
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.