Here is a confession of a trend follower: I am always long at the top. I am always late with getting out of the market. When the market hits its top, I am there. But when it is on the way down, initially I am still there.

Does this sound bad to you?

I can imagine that you see it as a sure loss when you are long the market when the market is at its top. Logical, after a top the market is declining. And when you are long a declining market, you are losing money.

Perspective on Winning and Losing

Correct, but it is all a matter of your perspective, or the time frame that you are considering.

The essential part of the opening paragraph of this blog post is the word “initially”. “Initially I am this there” when the market is on its way down. Before the market goes down too far, I would have jumped ship.

Thus, when the market was at its top, I was long. But not that long after, I would have stepped out, limiting my losses between top and exit.

Still a loss, you could argue. Not really, the way I look at it.

About three years ago, I explained already how I was making money in the stock market and looking for ways to beat the stock market index.

That still stands.

Costs of Doing Business

The crux is that the loss between top and exit is not a loss when you made a much bigger gain before you got to the top.

The loss between top and exit is merely the costs that you have to pay to be able to reap the gains of the period before you got to the top.

The only way I know of avoiding these costs is to have a crystal ball that tells you the future. Let me know when you have found one.

Till that time I am happily accepting the loss between top and exit as a cost of doing business; as a cost of making money in the stock market with trend following.

Enjoy the View from the Top

The view at the top is just too beautiful. When you look back and you see that long, winding slope up. When you made that climb, you saw others turning back. They thought that they were already at the top.

You accepted the fact that very few climbs to the top are going in one straight line. Sometimes you need to do a few steps down before it is going up again.

And each time you stand at a point that might be a top, you look back and enjoy the view. Then you go one, because there could be a higher top around the corner with an even better view. You do this till the moment, that your objective height meter and clock tell you that you are now on a downhill slope.

At that moment you call your private helicopter, exit the trail and save your energy and recourses for the next climb.

I just love to be long when the market tops.