OPENING POSITION
October 2001
Create a trading plan, follow the plan, and use money management strategies within the plan - these are the three basic rules of trading. It doesn't matter which way the market is trending, it doesn't matter whether the market is in a trend or trading range, and it doesn't matter what others are saying. In "The Survivors," the October 2001 STOCKS & COMMODITIES interview that starts on page 62, you'll find out how three independent traders made it through the bear market. Did they follow the three basic rules of trading? Yes, but more than that, each of them never made the mistake of anticipating the direction of the market. They also adapted to changing market conditions, adding another component to the trading principles - flexibility.
Speaking of flexibility, in his article "Flexible CandleCodes," Viktor Likhovidov introduces us to a trading system that adapts to different markets by altering certain parameters. It takes just a few changes to add a new dimension to your candle charts. But not all trading systems are so flexible; there are some that can be long only in certain markets, such as Clifton Mitchell's system ("Position Trading The S&P," page 26), used for trading the S&P contracts. During selloffs, he suggests moving your money into conservative instruments until the next up move. It's a conservative strategy that keeps you in the market about 45% to 51% of the time.
Mitchell's system may be conducive to some traders, but if you don't want to stay out of the market during these downturns, there are several other options you can take advantage of. The most obvious is to follow the trend. But to do that, you have to know when a trend is initiated and which way it is going to go. One way of finding the trend is to apply the "Trend Detection Index" (page 54). It not only tells you when a trend has started, but it also tells you the direction of the trend. Knowing these factors will give you a heads-up on which indicator or trading system to apply.
Finally, the systems and indicators generally discussed in this and past issues cater to more experienced technical analysts. It's been our goal for a while to introduce technical analysis to those who don't have the wealth of knowledge that many of our readers do. So with that in mind, we've added "Working Money," a supplement for the beginning technical analyst or investor. This new section discusses basic charting techniques and indicators, along with articles on sector rotation strategies using mutual funds. This section will also touch on certain fundamental techniques. If you find that some of the articles in S&C are too much, we think that the Working Money articles may be right up your alley.
Everyone deserves a chance at making money in the markets, and it's
our goal at STOCKS & COMMODITIES to make it happen.
Good Trading!
Jayanthi Gopalakrishnan,
Editor
Excerpted from an article originally published in the October 2001 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2001, Technical Analysis, Inc.
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