MY ADULT LIFE

began the day I understood

persistence of trend

. This undeniable trading truth dramatically increased my profitability and changed the way I look at the world.

Markets aren't chaotic. Just as the seasons follow a series of predictable trends, so do market psychology and stock prices. Stocks are like everything else in the world: They move in trends, and trends tend to persist.

We are all looking for an edge. Low commissions and superior trade execution can only do so much. I have found that the biggest advantage you can have in the market is to trade with the trend. It's the economic equivalent of having the wind in your sails.

In my experience, good traders seldom have strong opinions about the future, because they are humble enough to know their opinions don't mean squat. The future will unfold no matter what any of us think about it. What most fundamental investors and message-board devotees fail to realize is that it isn't our job to hypothesize how a stock should or could act. What matters is how a stock is acting at the time of our analysis.

That's why good traders leave their egos at the door. They don't want to be "right." They just want to be profitable. Good traders don't talk about the market, but listen to it.

And the reason they listen is this: Trends in the market tend to persist. So as a rule, I want to buy strength, simply because strong stocks tend to stay strong. "Strength" of course, refers solely to price action, and not to anything fundamental occurring within the company.

Many of my best trading ideas come from the 52-week high/low list, probably the most important and least understood weapon in the investment arsenal.

It's a philosophy that belies one of the biggest misconceptions you hear on Wall Street that past performance is no indication of future performance.

Au contraire!

In fact, recent past performance tends to be an excellent indicator of near-term future performance. It's only long-term past performance, especially the type that's so frequently quoted by the mutual-fund companies as a reason for investing in stocks, that offers no guidance to the future.

For example, just because Microsoft led the market during the early 1990s is no indication that it will ever do so again. Xerox's performance during the go-go 1960s was no indication of the hardships that would befall the company 30 years later.

But near-term past performance is quite a different matter. Think of it this way: That it was sunny three weeks ago doesn't tell you anything about today's weather. But if it was sunny in the morning, you might reasonably expect a sunny afternoon, too.

That isn't the way most investors think or they wouldn't insist on buying so much recently marked-down merchandise. Watch the Ameritrade Online Investor Index,A brief explanation of Ameritrade's index can be found here

Another telling piece of evidence: Last year bonds and other fixed-income investments dramatically outperformed equities. But while inflows to bond mutual funds have picked up, the average mutual-fund investor is still unquestionably long stock, hoping that those "bargains" will rebound. I take that as a pretty good indicator that the next big bull market will most likely be in bonds.

I want to be long stocks that are strong now, because long-term performance starts out as short-term performance. When a stock begins moving in one direction, the law of inertia alone is often enough to suggest the trend will continue. It's far more likely a strong stock will get stronger than that a weak stock will turn around just because I bought a few thousand shares. But most people would rather buy weak stocks in the hope that they'll become strong again, rather than strong stocks that most likely will get even stronger.

list easily. Many of my best trading ideas come from the 52-week high/low list, probably the most important and least understood weapon in the investment arsenal. Stocks making 52-week highs are, by definition, strong stocks just the type that tend to get stronger.

This type of trading takes confidence. Unconfident traders are afraid to buy stocks at new highs because they are certain that, with their dumb luck, XYZ is going to plummet as soon as they buy. They'd much prefer to buy a dip (read: a dog), snag a perceived bargain and hope for a rebound.

But when a stock is making a new 52-week high, it's holding up a big sign that says "liquidity needed." That's the time a trader wants to step in and add liquidity, simply because what we fear to be "the top" is probably just a top. So I buy high and sell higher because when you buy a stock making a 52-week high you are inherently buying a strong stock.

There's also such a thing as too much confidence, and it's embodied in that shopworn proposition, "Buy low, sell high." Overconfident traders buy technically weak stocks languishing at multimonth lows because they seem cheap. They believe things are about to turn around because they have a hunch, or saw a research report, or watched a demo of a new product. It isn't our job to pass judgment on how things should be valued, merely to respect how they are valued. Stocks at 52-week lows are there for a reason. Let them be.

I don't fight the tape. I don't need to prove I'm right. While the world often seems chaotic, it moves in trends, most of which tend to persist longer than we'd ever expect. And in buying strong stocks, traders are following the trend instead of fighting it.

Capitalistpig.com, a Chicago-based hedge fund.