By the Disciplined Trader
I’ve been sitting on the side-lines watching the markets evolve; learning and waiting for clues to determine the next direction. There are a few factors that give caution to taking any directional position here and now, so I’m preserving my cash by remaining flat until more favourable trading signals appear. The euro is in free fall and commodities have turned down - these are all signs of market distress and the situation may deteriorate further before any signs of a recovery appear.
In a bull market scenario my signals to go long on an RSI drop below 30 would be triggered, usually this would offer me a profitable trade back to the highs. However, the current market conditions are not exhibiting typical bull market behaviour; every attempt to bounce has been met with fierce selling, stopping any bullish progress in its tracks and leaving the FTSE 100 and S&P 500 floundering at their lows since the 18th May. The FTSE also remains firmly established below its 200-day moving average and the price can stretch even further away in harsh trading environments.
All these behaviour patterns are synonymous with a bear market, so my trading strategies going forward are to either look for strength to sell and ride the trend or wait for deeply depressed levels which cry out for intervention.
When the markets remain powerless to rally, participants will wait for a catalyst to offer support; this usually comes in the form of Central Bank liquidity intervention (QE3). This should give rise to a snap back rally as shorts begin to cover and prices are propelled higher.
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.