Saturday, November 10, 2018

Trading the downside - remaining faithful to the process

The last couple of months have been very positive as profitable downtrends have appeared in a number of stocks, both at home and abroad. Fortunately, I have been able to profit from some of these (while suffering small losses in a few others!), and while some which developed into downtrends have now triggered their exit signals, prices in others have remained in a downtrend.

This has potentially meant I may have been able to profit from the downwards move while those who trade longer-term trends have had to suffer an erosion of open profits, or even suffering losses, from a pullback or retracement within the context of a prevailing longer-term uptrend.

Was there any great foresight in determining that the market averages were going to fall? In a word, no.

All I saw that there were far more shorting opportunities coming up on my scans compared to long setups.

In recent years I have also paid no attention to the price action in the indices for determining my bias. I talked here about how the major averages are calculated and how they can distort the reality of what is happening under the surface.

As always, nobody knows when an entry signal is given whether a subsequent trend in your favour will develop, together with the magnitude or duration of any such move.

This is the reason why the majority of trades taken by trend followers end up being failed breakouts - we are looking to enter whereas other traders or market participants may be looking to trade in the opposite direction off of support or resistance, and you can never tell in advance which signals and entries will generate the profits or losses.

As a trend follower, all I can do is take the signals which meet my criteria when they are presented to me, and act on them accordingly.  So I just need to remain faithful to the process.*

And once I am in a trade, I cannot control what happens from that point in time until my exit is triggered - that is down to all the other market participants, and their own buying and selling.

* As it happens, I have also entered a couple of long trades which triggered in the last few days. Again, I have no idea what will happen post-entry, but the setups met my criteria, and I got in when the entry signal was triggered. What else was I supposed to do?

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