Friday, May 01, 2015

A time to pause and reflect

The markets have shown plenty of indecision and volatility this week. While a lot of the indices are still close to multi-year or all-time highs, there is clearly a battle going on between buyers and sellers. Despite this, I have only been stopped out of one position this week (for a +2.57R profit), and now I am left with two current holdings, which are also both in profit, so my exposure to this volatility is light.

What is noticeable again is that very few stocks have made it onto my watchlist in the last couple of weeks or so. And of those that did, hardly any have actually triggered an entry, and they tended to quickly fail. That in itself is a warning sign that market conditions are not favourable toward my own approach.

At the same time though, I will not be closing my existing trades, for fear of losing those open profits. Providing the trailing stop levels are not breached, then those positions will remain open.

Those of you who have read the Nicolas Darvas book will recall that, during a profitable period, one by one his stops were hit on his trades, until all his positions had been closed. Unknown to him, the markets were beginning to change direction, and the fact he was taken out of those trades was an early warning sign of trouble ahead.  Now, I have no idea what is going to happen (and despite what others may say, who does?) - but like Darvas, all I can do is follow my rules.

It is in these periods where having patience and discipline come to the fore.  Remember that, if market conditions are not conducive towards your style of trading, cash is a position, which is invaluable to an individual trader. You don't have to active in the markets every day.

As it happens, European markets are closed today, and the UK markets on Monday, for bank holidays. So this is a good time to pause and reflect.


  1. Hi Steve,

    What is your opinion of trend following on lower timeframe (i.e. 1 H) vs higher timeframe (4H & above)? Does applying the strategy on lower timeframe makes it less effective as market is usually more volatile and prone to whipsaw?

  2. I'm not sure it works very well on those shorter-term timeframes. If you are trading forex or indices, then you would have to factor in the economic announcements that come most days, which can cause spikes in volatility - this is similar to what I do in avoiding opening positions in equities just ahead of scheduled earnings. Transaction costs can also become an issue.

    Ed Seykota had something to say on this topic here: