Monday, February 28, 2011

Keeping my powder dry

As readers will know, I try not to predict what will happen as regards market direction. As a trend follower, I look to identify a trend, and then act accordingly. However, the market state is confusing at the moment, with no real direction apparent.

Although I do not base any of my trading decisions on fundamental analysis or news events, it is clear even to me that the recent events in the Middle East and North Africa, together with the continuing uncertainty over the state of the ecomony in many parts of the world is having an effect.

Readers of the trades log will also note that I am significantly under invested at the moment - partly due to a lack of interesting opportunities cropping up on my scans, and partly due to the uncertainty over the market direction. However, my bias at the moment is on the short side, simply as a result of being stopped out of a number of long positions during the last week or two.

For trend followers, this is the most difficult market state to deal with - the whipswing around can easily erode a significant proportion of your trading account.

As individual investors, we have a distinct advantage over hedge funds and other institutional investors in that we can choose when not to play, particularly in adverse market conditions, which do not suit our system.

It is important to remember that you do not have to trade every day - better to keep your powder dry until a definite trend becomes apparent.

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