Friday, October 14, 2011

A change of direction

The markets have spoken this week, and the general indices have performed an about turn from the drop starting in early August, and are signalling a new uptrend.

The saying 'the trend is your friend, until the end when it bends' has been no more apt than during the last couple of weeks, as short positions have been exited, and starting to be replaced by new long positions (posted in real time in the members area).

It is a trend followers job not to question why a trend has changed, merely to act upon it. Changes in trend always lead to a) a loss of open profits, at best, or b) losses taken exiting losing positions as stops have been hit.

Trend following is purely an unemotional trading activity - the system rules are designed to get you in and out of your positions. Combined with appropriate risk management, this means you can absorb any losses, keeping you in the game and be able to move onto new trends, new possibilities. Who knows, this new trend may take off and propel us to new highs for the year or even more...


  1. Can you explain on what technical basis you think the markets are signalling an uptrend?

  2. Based on the daily charts where new highs have been made on the FTSE, DAX, Dow and S&P last week, in accordance with my own system rules. As it happens today has been a sharp down day, however that does not alter the fact that the breakout signals were given.

  3. Thanks. Under what circumstances would you consider a market to be range bound and hence a trend following system would be less likely to be profitable? For example trading the Dow between 10,600 and 11,600 would have been very succesful over the past two months but trying to identify a trend to trade would have lost money. Personally I think the indices are still moving in a range so I wouldn't look to follow a trend until clearer evidence of a breakout

  4. The Dow has been range bound like you say, oscillating between the breakout levels as shown on the charts, and determined by the system rules - the lack of direction in the last few weeks, combined with the volatility is the absolute worst market state for a trend follower. I myself had a short bias as preceding trend was downwards from early August. This has now changed with the long entry signal on the indices last week. Having said all of that, the markets remain very choppy, and I am not fully invested at the moment until ideally a) volatility subsides and b) the uptrend becomes more apparent.