Currency Trading Tips # 1: Don’t bet the farm… (The Grandma Indicator)
July 27, 2009 By Henry Liu 20 Comments
Last week turned out to be another week of risk appetite driven week… Seems like everyone and their cousins are ready to get back in the market and start to “make money” while bunch of so-called analysts are popping up everywhere saying that “recovery will take full force” and “there are more room for this upside move”; if you watched any of these financial channels over the weekend, undoubtedly you should be convinced of what a great opportunity it is… so what are you waiting for?
Well, before you take out that 2nd mortgage or cash in your credit cards to fund your account, if you’d recall, isn’t eerily similar to that time just before the equity market crashed or when that GBP/JPY pair dropped into a bottomless pit? I mean just when everyone and their mothers are sure it is time to get in the market, it is already too late to get in…
I saw this is an article once before and the author calls it the “grandma indicator”… basically if even your grandmother tells you that it is time to invest in the stock market because _____ (fill in the blank), then you better believe it, everyone else pretty much knows about it too… And this usually means:
Smart Money is already in and possibly looking to cash out, and as you are getting into the market, you are basically buying at the top or selling at the bottom, help these Smart Money investors to pay for their overpriced cars and mansions…
So what is the golden rule of trading? You BUY low and SELL high! Why would anyone want to BUY high and then SELL low is beyond me, and just when the WHOLE market is convinced that we’ll see even higher highs, I am convinced that the fall will be that much harder, believe it or not.