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Secret 1

The trend is your friend

Don't buck the trend. The way to make the really big money is to determine the major trend and then follow it. If the market will not go your way, you must go its way. When you are in a bear market and the major trend is down, the plan should be to wait for rallies and sell short, not try to pick the bottom. In a major bear market, you can miss the bottom several times on the way down and end up losing all your money. The same applies (in reverse) during a major bull market. Always go with the tide—never buck it. Let me repeat this, because it is important; it is easier walking with the wind than against it, it is easier swimming with the tide than against it, and the big money is made by going with the trend, not against it.

As Livermore told us, in a major bear market, it is safer to sell when the market is down 50 points from the top than when it is down just ten. The reason is, at down 50, all support is gone, and those who bought the breaks have lost all hope, are demoralized, and, in a leveraged market, are at the point where they all try to exit the same small door at the same time. The result, at times, can be an unexpected avalanche. I can give you many examples of markets that have trended long and far, made some people rich, and wiped out many others. You might have heard about the poor soul who lost his farm. I can almost guarantee that guy was bull-headed and fought the trend until he finally ran out of money.


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