Markets Donít Trend, They Burst by K.D. Angle
Is there really such a thing as a trend? Maybe not. Maybe a relatively few pops in price make up most of the market movement we see.
Does this statement, or something like it, sound familiar? ďOf the annual returns from the stock market over the last 10 years, 90% were generated in a month
or so, and unless youíre always in the market, youíll miss out on those few days that generate the vast majority of returns.Ē
Variations of that statement are common, and itís true that an ďalways in the marketĒ strategy has worked for portfolio managers like Warren Buffett as well as large commodity/futures money managers that utilize long-term trend-following strategies. Stepping back and taking a look at a 10-year chart of the daily prices of the Dow Jones Industrial Average (DJIA) would certainly give an observer the impression that this has been a long-term trending bull market. Even if you examined a monthly chart over the last few decades, you would come up with a similar conclusion. But if you were to analyze the movement of daily net vertical price movement, you would begin to understand that there was something altogether different taking place.