IS it a peak or is it a trough? That question's probably crossed the mind of all of us at least once. We want to have fruitful journeys when we trade: Go long when the trend still has room to rise further and short when things are looking bearish. But sometimes that doesn't happen, often leading to frustration and other negative feelings. How do you avoid that?
It has been said time and time again that markets move in cycles, but the timing of these cycles varies from market to market. That's why it is important to identify where prices are in the cycle before placing a trade. In this, the August 2006 issue of Technical Analysis of STOCKS & COMMODITIES, we spoke with commodity market analyst Glen Ring, who has been following cycles for more than 20 years. He discusses the importance of following the various markets and understanding the relationships among them -- a critical component when it comes to timing your trades. The interview starts on page 48.
Sometimes we get so caught up in trying to time our trades by focusing on one indicator that we forget to take into account the big picture. We are all aware of the simple but overlooked concept of not trading against the trend. But what if the trend is up and the cycle is down? In "Modeling The Market," starting on page 21, John Ehlers discusses a trading system where he uses two components that are based on the time frame of the dominant cycle. When those components are combined with indicators, they have been shown to improve the indicator's performance. So if you've been using an oscillator, say, to help you determine when to enter and exit a trade, but you found yourself being whipsawed more than you would have liked, implementing this model may eliminate the choppiness.
You can't have a discussion of cycles without visiting the topic of sectors. In the article "It's In The Sentiment" by Ajay Jani, you'll learn a simple technique that identifies the behavior of the Rydex Sector Funds. You'll find that it's a great foundation for your market timing system. Turn to page 28 and take a sentimental journey yourself; revisit all your past trades and ask yourself, "Where were we in the cycle when I placed this trade?" You may be surprised at the answer you get.
Originally published in the August 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2006, Technical Analysis, Inc.
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