Monday, April 02, 2012

A state of flux

The markets are showing a distinct lack of direction at the moment - indeed, you can argue that since the middle of February the markets have been stuck in a wide range.

As trend followers, this is the worst type of market. Trend followers need a trend to make money, and with the market currently in this state, gains have been few and far between. Indeed, the lack of direction has caused me to be stopped out of several trades. As always, I treat these as a cost of doing business, and the risk management rules I employ will ensure that I will remain in the game, ready to profit from future trends, in whatever direction that may be.

As mentioned in earlier posts, the FTSE has been weaker compared to the DAX and the major US indices, and actually touched the short signal line a few days ago (based on my standard system parameters). This has been reversed, with a strong day today leaving the index in no man's land.

My own performance so far in 2012 has been disappointing, for a number of reasons:
  • I took a break from trading from mid-November to the middle of January (my first trade of the year was on 16 January), meaning that I missed the inital long breakout signals both in the indices and a lot of stocks given around the turn of the year;
  • I subsequently took the conscious decision to play myself in at a slower pace, restricting the number of positions I can open on any given day;
  • I clearly identified several big trenders (mentioned on the chatroom) but did not place the trades myself, partially due to the reasons above.
I gave some training to other traders in late January/early February this year, and is nature's way, they started trading the system during the middle of an uptrend that promptly stalled. Such is life. This is not a fault of the system - far from it. It is simply the market acting as it is prone to do. In the mind of a trend follower, trying to predict the market is a futile exercise. All we can do is react to the signals it gives.

Of course, if you are trading stocks you can simply focus on the trend signals in that particular stock, however in general I prefer to have the general market direction also going in the same direction - if the trend in the indices is in the same direction as the stock you are trading, so much the better.

I do not have a crystal ball, so therefore cannot predict whether this rally following the drop last week will be short lived, or whether we will see a resumption of the uptrend. All I can do is wait and see.

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