Last two weeks showed me again that your perception of the state of the market(s) depends heavly on your trading style and the system one prefers (if any, hopefully you do have one :)). Different players with different styles come to completely diverging conclusions. I chose two examples with chart snapshots, that occured during this (and last) week (if you want to see the corresponding weekly analysis, see here for the 40th and here for the 41st week of the year):
Consider the following chart (this is the german DAX, click on picture to get the full chart):
If you would look at the chart and incorporate gut feeling into your trading style, you could say something like "oh the DAX is struggling with the upper border of the kumo" and might be pretty hesitant about entering a trade at the 2nd, 3rd or 4th signal. Indeed the price is oscillating around this line and you probably would not enter a trade (or even all trades). But then maybe you miss the really big move upwards! Or are spared to go down with a feared sharp drop...
If you are a pure trend follower on the other hand, you most likely would not even look at the chart. Or maybe you would because you don't have a shiny magic software that does all the calculations for you and pushes you nose into a big "HERE IS A SIGNAL" sign :)
But you would ignore all the context, a signal is a signal is a signal. You would enter every single (of course depending on your risk management model, maybe you enter only 1 trade per direction) signal and hold it until the system tells you to get out. Which is itself a completey different story (the getting out part) and from my perspective much more important than the "getting in" one. Consider the following chart piece (this is EUROSTOXX 50, click the pic for the complete chart):
If you have not incorporated transaction costs into your trading system, this should get you thinking... If you trade each and every signal, you will get the big one that will pay for all your losing trades. If you were not wiped out by transaction costs and the many many signals that got stopped out. Think about SL and money management, if you did not yet.
Which style is better? It`s completely up to you, never ever trust this or that anonymous guy writing blog posts about trading. Go figure out for yourself!
P.S. In hindsight we all will be much smarter :)
P.P.S. If you would like to leave a comment, I'd love to read about your thoughts. So much left to say about those topics...
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