Monday, June 11, 2012

A trend follower is regimented

Today's current chart of the Dow shows how increased volatility, a sharp counter-trend move and a gap up can easily force you out of a position. This can happen just as often in stocks as in any other instrument. If it happens, you adhere to your stops, take your profits or losses, and move on, waiting for the next signal. Regimented yes - boring? To me, no. There is no interpretation of the chart required. The entry and exit signals are clearly given. There is no second guessing involved, and this is where an understanding of the psychology of a winning trader is needed.

A trader's goal is to make money, not to be proved right. The markets may consolidate and go higher from here, or they may revert to the downtrend that has been in play the last few weeks. A trend follower has no way of knowing. All we can do is follow our rules.

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