The markets are currently experiencing a sharp increase in volatility, with some traders and market commentators wondering if the market 'top' is now in place. 2013 has been a very good year so far, with a relatively stable, quiet uptrend taking place. These are the best conditions for a trend follower to make money. As always, the difficulties arise when the trend starts to ‘bend’. This can lead to an erosion of open profits on existing positions.
Some people may like to think of this phase as a ‘buying opportunity’. What is one man’s pullback or retracement, is another man’s trend reversal, depending on your timeframe and system parameters. The best course of action is to stick to your rules, observe and honour your stops, and see what happens. This needs to be coupled with the ability to avoid self-sabotage and psychologically motivated errors. For example, overriding your system rules, and in a sudden ‘panic’ closing your existing long positions when no exit has been triggered. This may work once or twice, but over the long run, it is better to stick to your rules.
We now have members from the UK, US, Canada, Holland and Portugal in the mentoring programme, and I have been using my experience from previous trend reversals to guide them along over the last few days, and try to give those traders the benefit of my knowledge and experience. This included the market top in 2007 and the downtrend in 2008, which was my most profitable year in percentage terms as a trader.
Now, I am not suggesting for a moment that we are about to experience a move similar to that. No, a trend follower simply looks at the markets and their own positions as simply and objectively as they can, based upon the price action and its trends. To quote Ed Seykota, I do not predict a non-existent future, however I remain ready to act in whatever manner is appropriate, based upon what the markets and positions are telling me.