Below are daily charts of the FTSE, DAX, and the Nasdaq. The common denominator here is that there are lower highs in place on those indices. This is a warning flag for me, and is mainly the reason why I have been so cautious in recent weeks. Indeed, both the Nasdaq and the Russell 2000 (not shown) are close to giving short signals tonight. On this side of the pond, the FTSE continues to be weak relative to the German DAX. But even with the DAX, it is clear that the pattern of lower highs throughout 2014 is intact.
Now, a new trend simply doesn't happen in one day - changes in trend direction normally take time over several weeks. On a longer term system, this process could take several months. However the charts since the start of the year, based on my own parameters, have shown indecision at best. Hopefully regular readers of the blog will have picked up on this in previous posts such as here and here.
What else has led me to be this cautious?
- A lack of decent set ups appearing on my scans (both long and short) further indicating that the markets have not been favourable to my method of trading;
- A lack of performance on the most recent trades taken (with one or two exceptions);
- The majority of new signals quickly failing.
- The general markets tend to be choppy and volatile when the trend changes. There can be wild moves in opposite directions from one day to the next;
- This gives rise to being whipsawed around in individual positions, potentially leading to stops being hit and losses being incurred;
- Limiting the number of new positions therefore limits drawdowns at these times.