The markets have become a playground for those who are armed with the right information. That pushes out those of us who may not be so privileged, because by the time we figure out what really is going on, it is either too late or we don’t know if we should trust what we are hearing.
Let’s look at what happened leading up to the Federal Reserve’s decision to extend Operation Twist. Two weeks before this much-anticipated Fed meeting, for the most part, the markets were moving in a clear uptrend. The day after the Fed announced their decision, however, we saw the Standard & Poor’s 500 plunge 2.23%, the Dow Jones Industrial Average plunge 1.96%, and the NASDAQ lose 2.44%. The Moody’s downgrade of 15 of the world’s largest banks played a role. Talk about timing!
If you look at the charts of any of these indexes, the action looked very dramatic. In one day, the indexes were back to where they had been five days ago. A similar picture occurred in the energy and metal sectors. The US dollar, however, continued showing its strength, mainly because of ongoing concerns in the eurozone. Going back to the broader markets, they were all trading below their 50-day moving averages on the daily charts. In fact, just two days ago, it looked like the 50-day moving average could act as a strong support. But then came this strong breakdown that bombarded your mobile devices with sell alerts, sending everyone into a selling frenzy.
I think this type of behavior is here to stay, no matter what kind of market we are in. It is definitely a different market, and the worst part is that it can wreak havoc on your profits quicker than ever before. This is all the more reason to step up your money management strategies and make sure you implement them into your trading systems.
The markets are so dynamic that it is easy to lose your focus. You don’t want to miss an opportunity, so you want to keep an eye on everything. But this can be the biggest mistake you make. You’ll get so wrapped up in what you are trading that you’ll forget to see the big picture.
So what can you do? Take a step back and really look at the markets, then focus on what you think will help you achieve your trading objectives. Don’t try to compete with those who have all the information. Find your own niche and trade it well.
Jayanthi Gopalakrishnan, Editor