Nick McDonald: How long will the bears be wrong?

How much longer can the bears keep being wrong? Photo / Thinkstock

The markets keep on going long (up), and the bears keep on getting it completely and utterly wrong.

I find the position of the bears, those who think that stock markets should be going down instead of up, a source of contestant amusement. The markets will go down again at some point; that is as sure as gravity pushing an object back to earth.

The funny thing is that these major bears are always trying to time the market and pick tops (as in this case) or bottoms. They may even partly contribute to giving traders a bad name since a portion suggest that we claim to have some kind of crystal ball to predict what will happen next. This is nonsense. No one can predict the future.

I for one look at market direction and trade with it. Since 2009 stock markets have been going up, they are still up and they remain bullish. When will they be bearish? When the market starts going down; it really can be that simple. It might start tomorrow, or next week or in 2018 with the Dow Jones at 22,000. The fact of the matter is, no human being knows.

Now, if you met a market bear tomorrow who told you "the stock market is about to collapse" and then in the next week it does collapse, you will claim that person to be a genius. What you don't realise however, is that that market bear has been saying the same things for the last five years. They will be right at some point and claim victory. I see it as a massive failure on their part; if they are trading the markets on these theories then they would be bankrupt or broke by now.

It is not just the markets where these bears persist. How often do we hear of a pending housing market collapse in Australia and New Zealand? Often right? And when we finally get a small correction, they claim to have been right. I recall however many such predictions on the housing market 10-15 years ago which have only persisted. These housing bears have been ridiculously wrong with only minor blips in house prices over that time, as house prices have been steadfastly strong. Yet the housing bears have become increasingly persistent with their theories.

What about the Kiwi Dollar? As NZDUSD rallied from a low of 0.3897c in 2000 to a high of 0.8842c in 2011, we heard constant and persistent calls that the exchange rate "should be lower". Yet lower it was not. Today it sits well supported around 78c. Are the bears right? Has it fallen sufficiently to keep them happy? I don't think so but they have certainly quietened down just a touch.

I have heard many claim victory in private conversations saying "I knew it would go down" to which I often reply "yeah but you said that for the last five years and were wrong for 4.75 of them". Maybe they still are wrong because NZDUSD has had barely more than a small correction and the longer-term monthly trend, as it stands today, remains up.

The lesson in this is important for anyone wanting to make money out of the markets in a steady and consistent manner (NB 'steady and consistent', NOT 'one big win'). Picking the top now and being right, that's a big win that many are chasing and 99.9 per cent will get wrong. Even those who get it right in the end will be partly getting lucky with the timing of their prediction.

Most will have said it for years and been utterly wrong. To be consistent, we need to trade the consistent direction of the markets and look for small moves in our favour on a regular basis. The best and easiest way is to go with the flow and trade with the market momentum. When the momentum changes, you don't need to catch the high or the low, you just need to see that it has changed and start trading in that direction.

Trading the markets is not easy, but it can be made quite simple. Yet those trying to predict major highs and lows in the market, are making it so difficult for themselves and others. Keep it simple!

Nick McDonald is a New Zealander teaching everyday people how to trade the worlds markets via his company Trade With Precision.