Friday, May 18, 2012

Trend followers to the fore

The whole purpose of an effective trend following system is to protect you from making big losses during non-trending phases (by utilising strict money management parameters) which will enable you to make profits during those more favourable phases when markets are trending. It would seem that so far this year, the period up to mid-February was a nice trend to the upside, followed by a couple of months where volatility increased and there was no apparent trend.

We are now in a situation where this could be the big trend of the year - price action is matching up to the perceived economic situation and major news (principally relating to the Eurozone).

I sincerely hope that traders whose methods do not work in a strongly trending market are using good risk control or are on the sidelines. Knife catchers and bottom-pickers (I hate that name!) potentially run the risk of being repeatedly stopped out of trades - stocks which are considered to be a bargains now, could be even cheaper in the coming days and weeks....

Trend followers (including myself) profited hugely from big moves to the downside in 2008, and the current economic scenario playing out has the potential to be even bigger. All we can do as trend followers is simply follow the trend that is now becoming apparent, use approporiate risk management, and act when exit signals are given.

In general nearly all traders and CTA's who are trend followers I know who were down for the year-to-date up to the end of last month. This period now is where those losses will be recouped, and profits made.

Remember, I am here to help (via 1-2-1 training or my e-book) those traders and/or investors curious to learn more about trend following - these traders have. Spending the time learning the nuts and bolts of such a system can save you a bunch of money in periods such as these, but will also enable you to generate profits from the short side. It will also help investors who solely hold stocks to go up in moving to the sidelines, protecting their capital, until such point in time when it is safe to re-enter the market. If you wish to learn more, please contact me.

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