For those who have a copy of Market Wizards, go and read the interview with the Investment Biker himself, Jim Rogers, who was part of the famous Quantum Fund with George Soros. For someone like me who does not profess to understand economics in great detail, it is an interesting read.
The financial markets at this point in time are in a downtrend, with the possibly that this could accelerate and have much further to fall. The situation in Greece, and to a lesser extent in Spain and Italy, will have major ramifications for the future of the Euro and the Eurozone itself. Last week also saw disappointing news from the US jobs market which contributed to the sharp falls on Friday. As a result of this, we have to consider the possibility that certain governements will try to intervene in the markets.
We saw intervention here in the UK back in 2008 when the Financial Services Authority banned the shorting of certain stocks, principally in the banking and financial sector. This lead to a one day spike which meant I got kicked out of some of my short positions, before the predominant downtrend re-asserted itself. There is the possibility of this happening again, both in the UK and elsewhere, along with further printing of money via QE3, or some other measures. For what it's worth, gold spiked up on Friday and is now on a long signal.
There is no way of predicting what lengths various Governments will go to, in order to 'prop up' the financial markets. However, prices will go where they want to go, so you still need to follow the principal trend in the markets, which is currently down. However, it is almost a given that volatility will increase as a result. As always, strict risk control will be required, and the psychological aspect of trend following for those who practice it will be tested.
To those individuals (especially if you did not use such a strategy in 2008) - if you able to accept and embrace the volatility, still ride the trends by sticking to the rules, and avoid making silly psychological errors, this year could be ultimate proving ground for your development as a trend following trader.