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Successful Investing Means Go With the Flow

12 | By Shah Gilani

If there’s one single, indispensible key to successful investing, it’s to go with the flow.

That’s my distillation of well-worn market mantras that you’re probably familiar with.

They include:

The trend is your friend.

Don’t fight the tape.

Trade the market you are given, not the one you want.

And don’t fight the Fed.

Go with the flow.

You can do all the homework and analysis you want – and be right – and yet still lose money. That happens when you own stocks you love, but the market isn’t loving any stocks. It can happen when you try to pick bottoms, and you get in before the market heads a lot lower.

And while you won’t lose any money by not being in the market, you’re not going to make any money in it either.

That brings us to today. We’ve had a furious up-move in the market since March 2009. We’re scratching at new all-time highs, and global markets are dancing to the same tune.

But the world hasn’t changed since last May – or the May before, when markets swooned on fears about Europe, America’s fiscal fiasco, a slowing China, or any of the other dark clouds that, at any time, can rain on the markets.

So, are we going higher?

Are we going to get a wicked correction? Is the sun rising or setting?

We don’t know if the market is going higher from here or if it’s headed down. But, we do know that the sun rises and the sun sets… every day.

That’s why, even if you could distill all of the unknowns that you don’t know into a plan of action, the only sensible plan is to not guess, but simply to go with the flow.

Going with the flow means following the trend – not fighting the tape or the Fed. But it’s not just a different way of saying those things.

For me, it’s about looking underneath what’s being talked about. It’s looking at investor psychology by looking at the flow of capital into or out of the market.

I go with the flow of capital. I don’t complicate my money-making endeavors in the market by overanalyzing or hoping. The most important thing for me is simply being on the right side of which direction capital is flowing.

Capital has been flowing into the market. It doesn’t matter that a lot of that flow is coming from the Fed’s stimulus efforts, it’s still capital flowing in. Don’t complicate things.

If capital starts flowing out of the market, I’m not going to fight that trend. Once I recognize that it’s the force of the prevailing psychology, I’ll go with the flow.

And you should, too. Don’t sit on the sidelines if there’s a party going on. Join it.

That’s what’s happening now. That’s what has been happening.

Don’t worry about what you don’t know. Just have an exit plan in place. It’s as simple as having stops – and raising them as your positions become more profitable.

So what if you get stopped out – especially with a profit – and the party gets going again. Get back in, even if that means higher prices than where you got out. Simply tighten up your new stops by placing them just below where the latest good support level is.

And, because it’s widely available, always have downside protection in place. It’s easy enough with ETFs that offer inverse positioning and with instruments like VXX.

I look at the market like the old lotto saying, “You’ve got to be in it to win it.”

Up or down, it doesn’t matter to me… as long as I go with the flow.

Best,

Shah

12 Responses to Successful Investing Means Go With the Flow

  1. Tom J says:

    Wow…For a guy with experience in the market, you just unveiled an alarming detail.

    You’re one of the “sheeple”….

    This market has already hit all time highs that will not be seen again for a decade. (save this message and read this 5 years from now).

    Buy Low, Sell High….it’s not the other way around!!! WOW!

    • Phil says:

      Yes, while I wouldn’t be so bold as to call this the high of the decade or Shah merely one of the sheeple, I also feel that this feature is very one-sided. I’ve earned money every year for the last five years by consistently betting against the trend, and with 2013′s trend now already weakening, I’m confident that this year will prove yet another contrarian winner.

    • don says:

      Tom J
      You be wrong.
      BUY High and Sell HIgher is the way around. The SHAH is correct.
      Individual Stocks and the market develop the big M–MOMENTUM.
      ONCE YOU SPOT IT, GO WITH IT FOR SUCCESS.
      What sign or signal do you have that the market is going south?
      There is none!

      • Phil says:

        There are many ways to trade Don, and if you do them right, momentum-chasing and contrarianism can both work. So to each their own. But in answer to your question why contrarians think the market could go south again, I’d simply note that none of the attempts to bury the US debt problem under the carpet have so far succeeded in making it go away.

  2. Thomas Hegarty says:

    I think I get it although for a non ‘pro’ it can be difficult to apply in a clinical fashion, excluding what you may or may not know or have heard or read recently.
    What we are saying then, is that a market has a life of its own, to some extent predictable upon major events and to the same extent, affected by the fancies and whims of millions of small players in the market.
    The only way to tell, is to watch the ebb and flow, totally disregarding what logic might dictate according to what you ‘know.’
    Shah makes it sound easy. Maybe it is when you’ve applied it often enough, honed your skills with someone elses money, until you’ve got the hang of it !
    I find it is easy to find yourself behind the curve, when you don’t have full time access to important movements in any market and have a job elsewhere. For this reason it is quite easy to make an expensive mistake.
    In a way Shah is saying be a ‘sheeple !’

  3. James Gentile says:

    The Vxx is the WORST trading vehicle around. Every time you feel like buying it bring up the long term monthly chart. I tried to trade it years ago when it first came out. Complete waste of money. There are better ways to get short, don’t insult yourself

  4. WILLIAM KIRKEY says:

    IN AS FEW A WORDS AS ONE CAN MUSTER, PLS GIVE US THE LOW DOWN ON HOW YOU GO ABOUT SELECTING THE STRIKE PRICE FOR ANY OPTION, CALL OR PUT?
    THANK YOU, I AWAIT YOUR ANSWER AND I’LL BET, SO DO A LOT OF OTHER SUBSCRIBERS.

  5. Robert Harris says:

    “So what if you get stopped out – especially with a profit – and the party gets going again. Get back in, even if that means higher prices than where you got out.”

    Remember Sir Isaac Newton and the South Sea Bubble? That’s what he did; and when the South Sea Company blew up, he lost the lot. True he probably didn’t have stop losses and hedges; but when your subconscious tells you to sell, there are other places besides the stock market to invest your profits.

  6. Robert in Canada says:

    Stops are OK if you are a pro day trader in front of a screen all day every day.

    But for the rest of us, stops will kill you.

    Often there are large price drops that last a few minutes or hours then prices go back up.

    You get stopped out, the price goes back up, and you are S.O.L.

    But the pro trader is laughing all the way to the bank at your expense.

  7. duane attaway says:

    DERRR, and we pay you for this advice????

    The charts have been telling us this for years. Volume hence, input of dollars lead the markets higher…..

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