Following the trend is the only weapon of an ordinary person
Why People who Want to Do Reversals with Gold Keep Losing
That contrarian instinct is run over by the strong trend in gold.
When gold is rising sharply, people think “it’s risen too much, it will soon retreat,” so they try to short (sell) as a reversal. When it has dropped sharply, they think “it has fallen enough, it will soon rebound,” so they buy as a reversal. Those who give in to this reversal temptation rarely win in gold trading.
Why do people want to reverse, and why does it fail? This time we’ll explain trend following vs. reversal in gold. Understanding this can greatly reduce unnecessary losses.
Why do people want to reverse
The lure of reversal is deeply tied to human psychology.The instinct to “buy cheap and sell high.”
When prices are rising sharply, you feel “buying now would likely be at a high price and risky.” Conversely, when prices are falling, you feel “you can buy cheaply now.” This psychology pushes you to sell in uptrends and buy in downtrends. The everyday sense of “avoid expensive things, buy cheap things” is carried straight into the market.
But in markets, this everyday sense does not apply.What goes up tends to go up further. What goes down tends to go down further.This is the trend. Reversal is acting against this trend.
Gold’s trend is exceptionally strong
Especially gold,once a trend appears, it can last much longer and be much stronger than expectedand continue in the same direction, defying repeated guesses that it would reverse soon.
What happens if you reverse against this trend? You sell and it keeps rising; you buy and it keeps falling. Unrealized losses swell. Moreover, gold moves a lot, so losses when you’re against the trend can be large. As you endure thinking “it should revert soon,” losses can expand to a critical level.
Reversal has the allure of potentially buying at the bottom or selling at the top if it’s right. But the cost when it’s wrong is too high. In front of gold’s intense trend, reversal is an unfavorable bet.
・Trends often last longer than you imagine
・Expecting a “reversal soon” is repeatedly betrayed
・Losses when going against the trend are especially large in gold
・The expectation that it will revert delays stop losses
It is far more advantageous to ride the trend than to fight it.