I lost a few points on the fund this fortnight but started a real pullback by Friday’s close.
A transition in the market cycle is always a good excuse when traders drop a few percentage points. So, I will try not to use it here.
It is a weak excuse as markets are transitioning, relative to one’s timeframe, routinely.
In the lower timeframe of day and even intra-day bars, some news events can change the cycle. For example, this week, Apple announced the closing (again) of some of its USA stores which had an unpredictable effect on the stock market and probably various currency pairings short term pricing.
Therefore, this market transition thing has got to be realised and managed better. We do this through such choices as being careful of overall exposure in any one market—because the Apple thing was unforeseeable.
What is a market cycle, you ask? Students of Wychcroft and the like will be able to go into great detail. However, for our purposes, a market is either trending or ranging.
And a market tends to spend significantly more time ranging than it does trending.
In this regard, a pattern is identifiable after the event. The anticipation of which is the tricky bit for a trader.
A few clues help. Observation of a higher timeframe structure can be instrumental. Either via an appropriate indicator or, as is my preference, viewing a representation of a more upper timeframe chart.
Indeed, not to do so is like a professional footballer only watching the ball and not taking into account the full picture of other players on the field.
To only chase the ball is what defines an amateur footballer!
I trade the hourly charts. That is my anchor timeframe and the one in which James will analyse to the nth degree—including micro, anchor, contextual and macro information.
However, as with our intrepid footballer, a regular glace up at the ‘bigger picture’ really helps.