Transcription:

Hey, Dan Murphy here and today I've got an important question for you.  One that I want you to think about a lot because it's a big philosophical question that I think is going to really help in your trading.  It’s this.  Here's the question:  Why do markets exist?  Why are they here?  Here's what I can say is that if a market, the price is level like this there would be no need for markets.  So therefore, a market exists because price moves.

Another way to say "moves" would be trends.  So why do markets exist?  Because price moves price trends.  If price did not trend markets would not exist, therefore the basis for all your profits that your greedy little hands are ever get out of the markets is because market's trend.  That is the basis for everything.

It's not going to be about catching every little squiggle, although certainly there's ways to capture mean reversion, especially in markets like the S&P 500.  The underlying truth is that the basis for all money that you’re going to be able to capture out of a market is because it trends.  If it did not trend it would not exist.

So I have a picture here, a chart rather, of NASDAQ 100 in its go-go days.  One hell of a trend on both going up and going down.  Of course, in the stock market, while fear is twice as motivating as greed is, so you're going to be able to really take these markets down in half the time that it built or even less as the case may be.  That's always some food for thought there when trading.

Let's look at some other markets here.  Let's look at a market that just when you think that a market can't go any lower, well this dang thing is definitely going lower here.  Natural Gas - what a tremendously long running downtrend.  Again, markets trend, they exist because they trend.  That is the theme.

Let's go to one of my favorites here, and that is gold.  We are in just over a decade bull market here in gold - still running pretty strong.  We had two decades in the NASDAQ 100 and S&P 500 in stocks in general.

These trends take a long time to go from their boom cycle to bust cycle.  Usually you can switch between one asset or another.  You know in modern times, in the past decade or so, we went from big boom in the NASDAQ and stocks in general and then we went to housing.  That really took off.  Then everything just kind of blew up I suppose.

At the same time, if you switched out of all of that you had gold to rely on.  So usually, there's something that as long as the underlying current is still expanding that that monetary policy is really bullish as it is now.  They're just creating more of the damn stuff, right, out of thin air.  Then you're going to have one asset bubbling or another.

That again is what I wanted to really hit home to you today is that markets exist because they trend.  Therefore, all the profit you're going to take out of the markets are going to be based on trends.  So what do you do to focus on as a trader?

You need to be able to focus on capturing trends.  I always talk about the S&P 500, how it's a mean reversion market, but in the longer-term, there's definitely a trend component to it.  I can show that to you real quick - the Smart Money Indicator.

Here we have the S&P 500 which really has gone almost nowhere for the past decade.  Over a decade this thing is all over the place.  These are trends that you can capture.  These are some big major trends.  I do my best to try to capture them.  I'm never going to be able to call tops and bottoms.  I just want to get the meat of the move, and here's what I can say about the S&P 500.

I'm going to go ahead and overlay my Smart Money Indicator over this.  I think it's very self-explanatory.  Green means buy, red means sell short.  This thing has captured some mighty big trends out of the S&P 500.

What's interesting though is what I can really teach you about the S&P 500 is that when it's trending like this, in one direction or another, that for a very interesting reason the S&P 500 is one of those mean reverting markets.  So within the trend it will tend to ping-pong back and forth quite a bit.

This is very very useful to the trader to acknowledge because like I said, the trend is what makes the money.  But also, if you didn't notice this, a mean reverting market like this, these right here are trends.  So if you’re buying what you believe could be a potential bottom; the market has moved down far enough with let's say the Smart Money Indicator, well then you're buying pretty close to the start what possible could be a new trend.  Maybe the market goes a little bit further down and then comes back up.  But either way the basis of all profits you're ever going to take out of these markets are going to be based on trends or moves in the market.

What I can tell you about the S&P 500 with my Smart Money Indicator, I've proven that it's a market of those that are smart and those that are dumb, and really we're going with the smart money and fading the dumb money.  Doesn’t always work.

Obviously here, one of the prime examples I could show you is here in 2008.  We had this big counter trend rally.  Those are going to happen all the time.  Counter trend rally's going to happen all the time.  Same thing as happening right now.

But as soon as we get one of those random, and I've got to state this, that the future is not knowable.  It’s mostly random.  But when you have the dumb money as the bag holders and we get some random event.  Random being I don't know what's going to happen.  I don't use TV’s; I don't use any of that baloney to predict where the market will go.  I just know the characteristics of how each market works and I can tell you that the Smart Money Indicator has really proven that beyond a doubt for me because it doesn't even use price.  No price input.

I've mentioned this a few times, but I don’t think I've talked about this in at least a year.  So if you’ve been a long time viewer of my videos you probably remember this.  There is no price input whatsoever into my Smart Money Indicator.  I look at money flows and that's it.  That's how all these signals are generated.  I think that's very interesting that it's really the hard things you do.  If it was so easy for everyone to do it, then everyone probably would have figured out my Smart Money Indicator by now.  But I don't think they have.

I've seen books that were attempting to get close to what I discovered, but they were not able to do that.  Sorry I can't throw you more about it, but I have to keep it close to the vest, but of course, I do give you the signals for free.  I try to help as many people as I possibly can.  I just can't give away all my recipes.  I guess I work pretty dang hard at this whole thing.  I love what I do.  I love figuring out how these markets work.  Hopefully you've definitely garnered something from that.

The other way I can say that you can make money out of the markets is in a simple way.  The S&P 500 is certainly not a simple market.  If you get a good trending market - let's go back to say Natural Gas or gold here.  Gold, a lot of people like that.  Is that the easiest way to trend follow to find a trend is to buy high.  The exact opposite of what you would maybe want to do in the S&P 500, but nevertheless that is the case.  Buy high, sell higher.  End of story.  Then you’re able to capture the trends.

There are many many different ways to figure out how to trend follow these various markets.  Certainly gold - it's so simple.  Really, here's what it boils down to.  Monetary policy - that's kind of like the big umbrella that encompasses everything whether all assets are mostly going to go up or assets are going to go down.  Mostly it's always been up because we have a fiat currency supply.

Let's not make this too long of a video, though I could talk for ages about this stuff.

Here's what the deal is, it's really about picking the right assets, the right markets.  Pick the trending market and you could have simple tools.  Buy high, sell higher, will work.  I want you to really think about that.  Markets exist because they trend.

The big picture is about monetary policy; make more and more currency is being created which it is right now.  And then just the matter of picking the right assets, those that are trending.  That's my other hint.  Then from there you could actually use simple tools.  Simpler the better.  Use simple tools and then you got yourself a nice trading business.  I really hope this helps you out.  I'll just catch you next time.  Let's end it right there.  I’ll see you later.