Opening Position
July 2006
As I write this, we're halfway through the year and the market we thought was just chugging along instead sounded the alarm and sent equity and commodity traders into a panic mode. Yes, that's what you have to put up with when you're in a speculative environment. The markets are showing us that no matter what we traders may think, they have the upper hand and will be as volatile as they choose. Don't be fooled into a complacent mode by a stable market. Those quiet markets come to an end at some point, and when they do, what comes after are far more severe.
Does that mean the markets have hit a peak, or does that mean they are just taking a breather? That's a good question, one that your trading system should be able to answer. In fact, this might be a good time to look at your trading system and see if a timely sell signal was generated when the markets started acting erratically. Not only that, did you aggressively sell at the first sign of weakness or did you hold onto your positions thinking it was just a temporary selloff? Here's something to keep in mind: Drastic selloffs are usually not temporary. When the big players are selling off their positions and everybody else follows suit, that's usually not a temporary circumstance. In those situations, it'll take a long time to recover all your losses.
When you have the opportunity to control your finances, you do need to be proactive in managing your risk. In this issue of Technical Analysis of STOCKS & COMMODITIES, we were fortunate to interview Michael Seneadza, of the popular blog TraderMike.net, and find out who he really is. It turns out that he's just a modest guy who trades for a living, and he has been successful with it. Read what prompted him to take the plunge into daytrading, but more important, what led to his success. It's all in managing your risks properly. That's the only way you can avoid damaging your net worth during those unpredictable, volatile times. The interview starts on page 62.
Volatility in the markets is cyclical and erratic. We saw that not just in the equity markets but in the commodity markets as well. With the increased interest in metals and natural resources, the prices of the related commodities just kept going higher and higher. Interestingly, there is a relationship between price and volatility. In the article "The Power Of Implied Volatility Charts" by Sam Bhugaloo, starting on page 34, you'll learn all about this relationship and how you can use it to predict price direction in commodities. A market that is moving along just the way you want it to is not something you should get used to.
Good trading!
Jayanthi Gopalakrishnan,
Editor
Originally published in the July 2006 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2006, Technical Analysis, Inc.
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