BLASH trading approach

        There is a story about a speculator whose desire to be a winner was intensified by each successive failure. He tried fundamental analysis, chart analysis, computerized trading systems, and even a number of esoteric techniques ranging from wave counting to astrology. Although each of these approaches seemed to work well on paper, once he started to place actual trades based on these methods an odd thing happened: His short positions inevitably seemed to be followed by towering bull markets, and steady uptrends had an uncanny tendency to reverse course after he went long. After years of frustration, he finally gave up in exasperation.

        It was at this point that he heard of a famous guru who lived on a remote mountain in the Himalayas and who answered the questions of all pilgrims who sought him out. The trader boarded a plane to Nepal, hired guides, and set out on a two-month trek. Finally, completely exhausted, he reached the famous guru.

        "Oh Wise One," he said, "I am a frustrated man. For many years I have sought the key to successful trading, but everything I have tried has failed. What is secret?"

        The guru paused for only a moment, and, staring at his visitor intently, answered, "BLASH." He said no more.

        "BLASH?" The trader returned home. He did not understand the answer. It filled his mind every waking moment, but he could not fathom its meaning. He repeated the story to many, until finally one listener interpreted the guru's response.

        "It's quite simple," he said. "Buy low and sell high."

        The guru;s message is apt to disappoint readers seeking the key to trading wisdom. BLASH does not satisfy our concept of an insight, because it appears to be a matter of common sense. However, if, as Voltaire suggested, "Common sense is not so common," neither is it obvious. For example, consider the following question: What are the trading implications of a market reaching new highs: The "commonsense" BLASH theory would unambiguously indicate the subsequent trading activity should be confined to the short side.

        Very likely, a large percentage of speculators would be comfortable with this interpretation. Perhaps the appeal of the BLASH approach is tied to the desire of most traders to demonstrate their brilliance. After all, any fool can buy the market after a long uptrend, but it takes genius to fade the trend and pick a top. In any case, few trading responses are as instinctive as the bias toward buying when prices are low and selling when prices are high.

        As a result, many speculators have a strong predilection toward favoring the short side when a market trades at new high levels. There is only one thing wrong with this approach: it doesn't work. Why? Because market's ability to reach and sustain new highs is usually evidence of powerful underlying forces that often push prices much higher. Common sense? Certainly. But note that the trading implications are exactly opposite to those of the "commonsense" BLASH approach.

        The point of all of this is that many of our commonsense instincts about market behavior are wrong. Chart analysis provides a means of acquiring common sense in trading- a goal far more elusive than it sounds. For example, if prior to beginning trading an individual exhaustively researched historical price charts to determine the consequences of market reaching new highs, he or she would have a strong advantage in avoiding one of the common pitfalls that await the novice trader. Similarly, other market truths can be gleaned through a careful study of historical price patterns.

        It must be acknowledged, however, that the usefulness of charts as an indicator of future price direction is a fiercely contested subject.

        Fundamental and technical analysis are important to successful trading.,

Good luck.

GOon