Tuesday, October 04, 2011

A nice stress free day in the markets

Occasionally you get days like today where, while all investors and those who trade against the trend are losing vast sums, you can sit there, with little or no stress, while your (short) positions go in your favour.

Of course, you also know that there are people who talk about the markets being oversold are busy throwing money away trying to perfectly time their entry into the market in the opposite direction. Those who understand trend following know that markets can stay overbought or oversold for a very long time...

I do not pretend for one moment to know how to spot a reversal in a market on a consistent basis (although I'm sure there are lots who do, or at least say they do). I therefore let the majority take the stress of days like today, while I will simply wait for a signal both for me to exit my existing short positions (whenever that may be), and when to start going long.

So you don't get in at the exact top on a short trade, and you know you won't get out at the exact bottom - so what? You will get the meat in the middle, and as you don't place any restriction on the size of that chunk, you are giving yourself the best opportunity to make big money if a strong trend takes hold.

Trend following - not the most exciting way to trade, for sure, but the most consistent, and proven over many decades.

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