Don’t Fight The Tape Meaning
What does ‘don’t fight the tape’ mean
and what should we do instead?
Fighting the Tape
Ok so last week I wrote about “Buy the rumour, sell the fact”
Today I want to talk about “Don’t fight the tape”.
What the heck does it even mean?
Well – let’s ask Chat GPT first shall we? (This thing is funny, when it doesn’t know something it BS’s with such confidence…)
TBF this time it did ok…
- Respect the market trend
- Avoid contrarian moves without a strong reason
- Adapt to market conditions
- Risk Management
All sound advice.
Here’s mine…
Don’t short an uber-bullish uptrend unless you want your face ripping off. (And vice versa)
In other words, you can have all the logical reasons under the sun to take that counter-trend trade, but if the market is moving one way you need to put the ego to one side and not take that trade.
Look at this chart of Natty: (No advice here, I just grabbed an example of a recent trending market)
A one-way street.
Don’t fight the tape means not trying to pick a bottom.
Alright so that’s pretty standard stuff, don’t try and pick a top or a bottom, but what could we do instead?
Here are some options…
Assuming you aren’t on the trend and are sitting watching this thing trend relentlessly without you.
You can either:
- Plan your counter-trend play
- Plan how to join the trend
The common theme here is “plan”.
No one makes money with reactive trades.
So how might that look?
Imagine the market is in a rampant downtrend and you hear that little voice saying “Don’t fight the tape”.
Quite right little voice, but that doesn’t mean you can’t be prepared for the turn when it happens…
So if you must get long, what would you like to see?
- A double bottom over a few days?
- An exhaustion flush?
- A higher low?
It almost doesn’t matter what it is, it’s the trade planning that matters.
- What do you need to see to consider the long?
- Where would you get long?
- How much risk would you take?
- Where would your stop be?
Similarly, you don’t just want to chase a trend either.
Plan your move to join the flow.
- Do you want to see a pullback?
- How far?
- What will you need to see?
- Do you need to see some resistance hold first?
- Will you use a moving average to guide you?
All the details matter.
Doing this will stop you chasing a trend, stop you fading a trend blindly, and put you in the driving seat.
You have a way better chance of making a profitable trade AND it makes you feel in control of your trading.
Planning and anticipating, not reacting.
And that’s a powerful place to be…