Opening Position
February 2007
Is the market due for a correction? To answer that question, we could look at fundamentals such as economic growth, corporate growth, the deficit, interest rates, and all those variables that fund managers look at. But do they hold the answer? Perhaps for long-term investors, but short-term traders are better off saying: "There's no right answer. There's no telling what may happen in the next minute." Take the case of Thailand, for example. At the end of December 2006, the government decided to impose capital controls on investments. What do you think this did to their stock markets? That's right, their markets collapsed.
And if Thailand were more strongly correlated to the US market than it is currently, we would have seen a similar scenario in our markets. Fortunately, this didn't happen, but that may not always be the case. The recent fall in the US dollar suggests that investor interest could be moving out of the US. This makes it even more important to keep alert to the possibility of a more volatile market. And being alert is what can make or break a trade.
In this issue of Technical Analysis of STOCKS & COMMODITIES, we introduce some articles that will open you up to what you need to pay attention to when trading for the short term. The feature article, "Anticipating Moving Average Crossovers" by Dimitris Tsokakis starting on page 20, discusses a methodology that you can apply to very closely anticipate where prices will move on the following day. This is only the first part of the series but given its unusual character, I am sure you'll find it to be an eye-opener.
But even if you have a system that works well, it doesn't mean you won't make adjustments to it over time. In the article "Tuning Intraday Strategies" by Lee Leibfarth, which starts on page 64, you'll get an idea as to what you need to know when you make those adjustments. This is an article I would keep in front of my trading desk at all times.
Whether you are position trading, daytrading, or swing trading, you
don't have time to do an in-depth analysis of the big picture. It's good
to know what the overall scenario is so you don't place your trades in
the wrong direction. But when you are trading for the short term, you are
really up against people who are interested in maximizing their profits
in any way they can. It's up to you to decide what strategy you can apply
to do the same thing.
Jayanthi Gopalakrishnan,
Editor
Originally published in the February 2007 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
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