Tuesday, September 23, 2014

Back to cash

As of today, I'm now back to being 100% in cash. Some long trades I took last week have quickly failed.

The FTSE has, in just three sessions, gone from near 20 day highs to making new 20 day lows. So we have non-trending, volatile markets - exactly the worst combination for a trend follower to deal with.

I've shown below the FTSE and Russell 2000 charts - what a mess!

These conditions are becoming more and more like those I encountered in 2011, where the market direction seemingly changed on a dime with no decent moves for most of the year. As it turned out, near the end of that year there was a move to the upside for 2-3 months which yielded some nice trends. The markets always move in and out of trending or non-trending states.

Somewhere there is always a trend - for example, there have been some decent moves in some of the major forex pairs in recent weeks. A couple of them are shown below. This is where diversification can help you. I myself have very rarely traded forex or commodities, but is now something I am looking at. The system itself is robust enough to do this. In the past I've tended to stick to what I know, which is stocks - there's been no real need to change.

It is these periods where people can get tempted ditch their system or method altogether. Trend followers need trends. Swing traders need a range to play off support and resistance levels. Day traders need volatility. Whatever your chosen method, patience and discipline are what is required, together with an acknowledgement that the market conditions are not necessarily favourable towards your preferred style of trading, or the markets you normally trade.

So what are your options?
  • Look to trade different markets which may have more favourable conditions;
  • Stay in cash and wait it out;
  • Look to change your timeframe - trading your system on a shorter or long-term timeframe may cut out the whipsawing and losing trades.
There are always exceptions to the rule. You may get into a trade using your normal approach or market which, for no apparent reason, takes off on a monster trend, which can cover all your small losses. I've not been fortunate enough to have such a trade recently, although I know of other traders who have. But, without question, if trading stocks it is a LOT easier to find them when the indices themselves are in a trending state.


  1. Wise decision. As they say the only people who make money in non trending markets are the brokers.

  2. I would far rather be out the markets, wanting to get in, instead of being in wishing I was out