For example, if one finds short term trading appealing, one can trade trends off a 5 minute chart. This approach used to be problematic, as profits tended to be negated by commissions, but with commissions so low today, I do believe that it is feasible.
Personally, I am more of a medium term trend trader that focuses on daily and weekly charts, and I find that this approach matches my needs in trading, but I would not say it is any better or worse than another approach.
Finally, on the other side of the spectrum, it is possible to be a very long term trend follower. This type of investor would most likely use monthly charts, and may only make a few trades a year.
In this post, I wanted to point out a very long term trend that is currently under way. It is the relationship between the price of Gold, and the value of the Dow Jones. I have been keeping my eye on this trend for years, and find it fascinating.
The chart below shows a 200 day moving average of the DJIA divided by the price of Gold going back 18 months:
As the chart declines, it is illustrating that as time goes on, the Dow is capable of purchasing diminishing quantities of gold. The chart also shows the result if one had gone long the Dow, and shorted gold - obviously a money losing proposition in this case.
The next chart shows the same relationship, but it goes back 10 years:
Another way to look at the above chart is to realize that in 2001, you could sell one "unit" of the DJIA, and receive over 40 ounces of gold. Today, if you sold one "unit" of the DJIA, you would receive less than 8 ounces of gold. I wrote about the reasons for this in another blog.
Finally, for the long term trend followers, we have the same relationship again, except going back 20 years:
As you can observe, the DJIA truly was the place to be invested from 1982 to 2000. A tremendous amount of wealth was created during this period, and I would even have to admit that a buy and hold approach would have been prudent during this time.However, since 2000, we have seen a great tectonic shift take place in the market, a shift that has made investing in stocks a relatively unprofitable endeavour when compared to other asset classes.
