By The Disciplined Trader
I was aware of the risk of further downside when I placed my long on the FTSE 100 at 5360 last week and maintained a wide stop in case of this action. But the way in which the market sharply pulled away from the 200-day moving average last week has left me feeling doubtful that a rally with any substance will ensue. I am also aware of the on-going situation with Greece and the country’s possible exit of the euro which could cause the markets to plummet should this happen.
One of my trading rules is that if I open a position and it immediately goes against me and shows a big loss, (this trade went more than 100 points offside) my trading stance changes – I no longer look for profits but merely to close my trade for a scratch or get out at break even.
When the market rallied from deeply oversold levels yesterday and then followed through today, I took the opportunity to cover my long position earlier at 5350 with a small 10 point loss. The market is too volatile for my liking, and the risk of further declines in this volatile environment is far too high. So I have decided to sit on the side-lines until I see more favourable trading conditions.
One of the writers at bettertrader.co.uk - Kathryn James, has highlighted today the potential for a counter-trend rally with further upside targets on the S&P (see post), I don’t necessarily disagree with her analysis, but my risk radar is ever mindful of a stronger rally occurring from lower levels. If this scenario should happen I am waiting patiently on the side-lines with cash to buy.
The Disciplined Trader is an average guy who has little fundamental knowledge of the financial markets, yet he consistently makes money trading. He simply applies the basic rules of trading discussed in bettertrader.co.uk and executes his trading techniques applying great discipline.