Tuesday, October 30, 2012

Market indecision

Both the FTSE and the German DAX are showing strength after giving intra-day short signals a few sessions ago. The pattern of lower highs and lower lows is still intact, so therefore the benefit of the doubt is given to the short signals, which are definitely in place on the major US indices (charts of the FTSE, DAX and Nasdaq below).

Particularly in the early stages of a new trend, there is indecision in the minds of traders - will a decent trend develop, or will this degenerate into a volatile period of whipsawing? I don't have a crystal ball that tells me - it is part of the reason why risk management is a critical element of long-term success.

There is also the theory that the market attempts "to make fools of as many men as possible", as Bernard Baruch famously said. If that is the case, then a lot of people will be seeing this as a market pullback prior to a further rally higher. Time will tell, and while anybody can have an opinion on whether we go higher or lower from here, I've learned over time not to question what my system tells me. Of course it is frequently wrong, but as I've said before, I only use the indices as a guide to determine in which direction the majority of my trades should be.

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