Saturday, March 03, 2012

No guesswork required

As the chart below of the Dow shows, there has been very little movement in the general markets over the last couple of weeks. 13,000 is probably seen by many as a critical level, as much as a psychological barrier as a technical level. This lack of recent direction is corresponding with the inevitable drop in volatility, as the market consolidates its recent gains. At some point, there will be a move - either a continuation of the existing uptrend, meaning that 13,000 will be convincingly broken, or a retreat away from these levels.  Nobody knows in which direction will the move be, so its simply a question of waiting and seeing. All you can do is place for bets (using appropriate risk management) and sit back.

For trend followers who follow equities, they should already have a long bias in their existing positions, so if it does take off again to the upside, they are already in trades which should benefit. If it reverses, then appropriate action will be taken when given an exit signal.

As a result, no guesswork is involved in the process - very simple, but very effective.

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