Opening Position
February 2012
The year 2011 ended with some serious global debt problems, which could have a negative impact on the global markets in 2012. I think the volatility we saw during 2011 will continue in 2012. And with so much volatility in the markets, it is always a good idea to look at technical charts to understand the big picture.
It looks as if the US is in a stronger position and is beginning to gain some lost ground. After what seemed like a never-ending period of weakness, the US dollar index is showing signs of strength. This tells you that money is now flowing back into US Treasuries from other markets. But the sovereign debt crisis in Europe is something we should not ignore; it could have a negative impact on the US markets.
The outcome of this is uncertain, and in uncertain times, it’s best to hold positions that are liquid. You need to be able to exit out of your open positions at any time. This is good news for traders and especially for technical analysts, since factors such as support/resistance levels and oversold/overbought levels have a lot of value.
This is also a great time to trade options. Many market participants may be intimidated by the thought of trading options, given that there are so many variables involved. But it doesn’t have to be difficult. You can start off with the basics by trading covered calls and then transition to something more complex, although it doesn’t have to be overly complicated. Our interview subject this month, John Carter, had an interesting journey into the world of trading options. He discovered that applying some of the simpler strategies ended up being more successful. The interview can be previewed here.
That’s not to say you shouldn’t apply more complex strategies; it really depends on the market conditions. The two-part series titled “Choosing Optimal Moneyness” by Giorgos Siligardos, the second part of which can be found in this issue, shows you how you can use an Excel spreadsheet to decide which options to trade. Your goal is to optimize your profits, and this article shows you an effective way to do just that. The article is previewed here.
There are endless ways to make money in the markets. For the last 30 years, Technical Analysis of Stocks & Commodities magazine has been bringing you various techniques you can apply to your trading; the volatility in the markets presents so many opportunities for applying these techniques. And don’t forget: Subscribers now have access to all the articles in our 30-year archive. Think of all the tools you have at your disposal!
Jayanthi Gopalakrishnan, Editor