Opening Position
December 2011
After what seemed to be an ever so extended bearish market, is there just the slightest chance that the markets are finally breaking out of that rut? Or is it yet another treacherous trap? When you see the markets break out of a trading range or see the shorter moving average intersect with the longer one appearing to cross above it, or when you see values approach the top of an upsloping trading channel, from an emotional point of view, it does give rise to some hope. But as traders, we need to exercise control over those emotions and make ourselves look at the markets objectively. We need to stay calm and see how the markets react at the next open before jumping into any long trades. The way the markets have been behaving recently, it shouldn’t surprise us if they swing wildly in an unanticipated direction.
Currently, we are seeing so many volatile swings in the markets, often for no obvious reason. The markets definitely have changed, and it looks like most of that change can be attributed to the superfast computers that seem to be dominating trading activity these days. Think of the amount of time it takes for you to analyze the markets, make a decision to place a trade, and press that buy or sell button. In that time, a computer could have placed more than a hundred trades. This is what we as traders are up against. News comes out before the markets open and the computers are already at it, placing trades faster than you can think. Where does this leave the retail trader?
We can never be faster than modern computers, but that doesn’t mean we can’t play in their field. We can certainly take advantage of these wild swings, but we may need to reevaluate our trading strategies so they are in tune with these times. For example, you may not want to hold positions overnight, or you may want to figure out ways to hedge your open positions. A few changes can make a world of difference to your trading.
Let’s hope the markets end the year on a positive note, giving that much-needed boost to the holiday season. As the end of the year approaches, I want to encourage you to renew your subscriptions to Stocks & Commodities before our rates go up on January 1, 2012.
Here’s wishing all of you a wonderful holiday season and a prosperous new year.
Jayanthi Gopalakrishnan, Editor