June 2004
When Federal Reserve chairman Alan Greenspan hinted at the possibility of inflation on April 20, 2004, the markets reacted sharply. The Standard & Poor's 500, the Dow Jones Industrial Average, and the Nasdaq Composite fell 1.6%, 1.2%, and 2.1%, respectively. The following day, Greenspan's comments about the Fed being in no rush to raise interest rates calmed the markets and - you guessed it - they skyrocketed. This type of action leads me to believe that there is money out there that wants to jump into the markets, but there is also plenty of caution in the air. And given the escalation of geopolitical tensions, this comes as no surprise.
Considering this amount of choppiness, indecisiveness, volatility, or whatever you want to call it hanging around in the markets, it becomes challenging to figure out which direction to place your trades. And when it gets this difficult, my instinct tells me that I should either close all positions by the end of the day, or even stay out of the market altogether. Drastic trend switches are common in such scenarios.
With that in mind, the STOCKS & COMMODITIES feature article this month is "Using Money Flow To Stay With The Trend" by Markos Katsanos. This article, which starts on page 40, discusses a new indicator and shows how applying it can help you stay on the right side of the trend. It doesn't hurt to follow the crowd, except, of course, at peaks and troughs, where it'll be to your advantage to go against the crowd. Shanghai-based investor (and TheStreet.com contributor) Helene Meisler looks for these tops and bottoms by studying investor sentiment and divergences.
Although she doesn't consider herself an active trader, she still relies on technical analysis tools to help her get in and out of the markets. My interview with her starts on page 72. You'll find that Meisler is not particular about using any specific money management strategies. However, most of us need to map out a careful money management plan.
No matter how much confidence you have in your indicators, always make preserving your capital a priority. Be disciplined about placing stops, and minimize your risks. Only then will you come out ahead in a choppy market.
Here's to smart trading!
Jayanthi Gopalakrishnan,
Editor
Originally published in the June 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.
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