Since Tuesday, stocks have gone straight up with barely a pullback. This has gotten many of the market players very bullish and giddy. Every where I turn I am told how to buy stocks and how easy it is to see that stocks are going to rally until year end. While I do or do not know if that will happen since nobody can or ever will be able to predict the future. I do know that when the crowd is excessively bullish or excessively bearish that this can lead to some possible inverse price reactions against the crowd.

Right now, it is shocking to me to see how bullish and cocky about it the crowd is. This was definitely not the mood in March 2009 when the market decided to start its uptrend that lasted until the summer of 2011. This was not the mood in March 2003 when the market started a rally on very heavy accumulation following a final leg down that saw volume dry up as we pulled back one last time. So the fact that the crowd is so bullish so soon coming from a V-shaped oversold low-volume rally is just a bit shocking to say the least.

This is not to say that they are not right. What I am saying is buying stocks up here is about one of the most dangerous trades you can make. The volume during the past nine days has been, to say the least, pathetic. Besides the initial reversal day that Tuesday which came on very strong volume, it has been a rally completely led by short-covering. V-shaped rallies on low volume historically has proven to be nothing but short covering and when they are done running in the extended shorts, historically institutions will then step in and begin another round of heavy selling like they did from July to August.

Investing based off emotions is not a sound investment strategy. A sound investment strategy will have you in at the early points of the turns. A sound investment strategy is not buy-and-hold, is not daytrading, is not investing on hunches or emotions. A sound investment strategy deals with years of proven history of how price and volume works. Patterns have repeated themselves in the stock market for the past 130 years. Nothing has changed and nothing ever will. Only the players. Oddly enough, decade after decade, century after century the same players continue to take more from the market than any other players. Trend followers.

From the days of Jesse Livermore to today’s William J. O’Neil nothing has changed under the sun for trend followers. Trend followers have a sound proven system based on time tested results. Trend followers cut their losses when they are wrong. They divorce their ego from their trading thus allowing them to cut their losses when they are wrong and hang on to their winners as they fly high. Trend followers have strict money management discipline and always play by their rules only adjusting them if the flow of the market tells them they need to adjust.

Trend followers get things wrong as much as they get things right. The difference is when a trend follower is wrong his losses will look like this. -5%, -3%, -8%, -5%, and -2%. When a trend follower is right his gains will look like this. 23%, 10%, 6%, 70%, and 27%. The reason is that markets don’t always trend. Sometimes we will get a signal and the market will prove to us that it was a fake job. When the signals are true, however, the trend follower rides the bucking bronco all the way to bank.

Trend followers trade to win. Trend followers don’t trade to make money. Since trend followers trade to win the gains obviously follow right behind. Why leave your life in the hands of talking pundits that don’t actually trade on CNBC or to that “hot” tip you received at lunch today? Why rely on your hunches to make a trade “you know” is going to work. Wouldn’t you rather trade in a way that has 130 years of stock market proof and 200 years of futures proof on its side?

Trend following isn’t easy and many that will try it will not have the heart or stomach to play the game the right way. If you do take the time to learn how to invest, I will see you at the top of the success ladder that all long-term trend followers with strict discipline always reach.