Monday, January 18, 2010


I've said this many times in the past but it bears repeating. The only way to lose money on the long side in a secular bull market is by trading. Unfortunately the one trait most investors have in abundance is impatience. Ironically that is the one trait that can produce losses in a bull market.

As long as one has patience the bull will eventually correct any timing mistake.

It's just senseless to take a long position in a bull market and then place a stop under it. Unless you feel that a move to your stop means further weakness and you intend to buy back at lower prices after getting stopped out there is no good reason to stop out of any long trade as it will be a winning position.

Let me show you what I mean by the bull correcting any timing mistake.

An investor could have bought the very top of every preceding C-wave and as of Friday still be in the green. I dare say they could have bought the recent top at $1225 and they will ultimately be just fine as they have a winning trade. Even if by some small chance the recent peak ends up being the top of this C-wave you still have a winning trade all you need is patience.

I will point out that all other C-waves when they topped collapsed fairly quickly back to the 200 day moving average. That's not happening here which is a pretty strong signal in my opinion that this is just the pause between the first and second phase of this particular C-wave advance.

The reality is that there are only two ways to lose money during a secular bull. One is by shorting (one has to have a death wish to short gold). Or two by trading with stops. As long as you avoid those two things it's almost impossible to lose money on the long side.

Now I know what you are going to say. What happens when the secular bull comes to an end? After all every bull eventually ends.

Absolutely true every bull does come to an end. But we know what to look for at the end of this bull.

We need to see the public flooding into precious metals. We need to see billboards everywhere touting gold. We need to see a massive parabolic spike upwards. We need to see every analyst convinced that the price of gold will never drop again. And finally we need to see a Dow:gold ratio at or close to 1:1.

We aren't even close to any of those requirements yet. Until we are the only way to lose money is by trading.