Monday, April 23, 2012

Trend followers can relax with market set ups like these...

The market action over the last week or so seems to indicate that a lower high is now in place, with the sharp downdraft today bringing prices back to the original short signal level. Prices never go straight up or straight down, which is why trend followers factor in to their trading systems an element of 'wiggle room' so that, once a signal is given, they are not stopped out on a minor reaction or market noise.

Trend followers will also be able to sleep easy on the basis that, with a set up like those shown on the two charts below, they are on the right side of the market. As I mentioned in a previous post, trend followers may well have already sold short markets such as these, depending on their entry parameters, and if they have they will be content to sit in these positions, until such point in time that an exit signal is given.

In addition, the reasons for the fall would tend to be irrelevant to a trend follower. They do not need to follow the talking heads on the TV, read the papers, listen to brokers etc. Remember that price and its movement reflects the overall supply and demand, and market sentiment of a particular instrument, whether it is a stock, a grain commodity, a foreign exchange pair, or anything else. A trend followers' job is to react to their system signals (WITHOUT second guessing), use appropriate risk mangement, and then sit back for the ride.

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