Sunday, July 29, 2012

The volatility continues

The indices are currently bouncing around, undecided as to which direction they want to go ( I've shown the Dow below). As soon as a long signal is given, the market reverses and drops down to give a reverse signal. The last two sessions last week saw renewed strength, with the Dow topping 13,000. Seemingly whoever opens their mouth (and what they say) in relation to the Eurozone situation is pulling the markets first in one direction, then the other.

Trend followers need to be objective in respect of their trading positions and the direction in which they are trading, as well as embracing the current level of volatility. These movements simply confirm why I do not trade the indices themselves, and look for trends in individual equities, while being guided by the trend in the general market.

Even if you have a belief about a market (and especially in which direction you think the market should go), trend followers simply follow price. If price and your beliefs differ, then maybe you should step to one side and sit this out (Remember that sitting cash is also a position, something that in the main CTA's and money managers cannot do!). If you are as trend follower who simply follows price and trades the indices, then you need to ride the 'bucking bronco' and keep taking the signals, using strong risk control, as at some point there will be a trend to exploit.

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