Thursday, March 10, 2011

Dawn is breaking?

Well following today's action a short signal has now been given on both the FTSE and the DAX, with the S&P and Dow right on the edge (may trigger a signal overnight). I have started adding to my short positions over the last day or so, and will continue to look for suitable candidates, while controlling my overall risk exposure.

On days such as today, any stock can get clobbered, regardless of its underlying fundamentals. If this potential trend develops into something akin to 2008, then in general fundamentals will become worthless. No doubt investors and traders who trade the long side only, who have no exit plan, will experience financial pain if such a downtrend persists.

Of course, there is nothing to say that the markets will now do an about turn and go north. All I can do is wait for my system to generate the relevant signals and then act upon them.

Losses are part of the game. If you don't want to have losses, then don't play!!! By knowing my historical win percentage and win/loss ratio, I know there will be losing periods, together with periods of stagnation, such as the last few weeks. However, when a major trend takes off, profits are made - fast!

A high proportion of all trades my system generates equal themselves out - small winners and small losers. The positive expactancy is generated by the big winners, which are left to run until the trend exhausts itself and finishes. The problem is, you don't know which trades will fall into that bracket. All you can do is control your risk, place the trades, and wait and see. Which is what I'll be doing in the coming days.

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