[Weekly Recap|04/16 ] World Indices, WTI Failing at Support

Even though 2016 started off as a massive down-year, closing out the week this Friday we’re ending the first trading month of the year with markets at least breathing a little bit. Some important support areas have been hit, and price wasn’t able to move through these levels towards the downside, instead it reversed quite obiously in all major World Indices as well as some other markets. Let’s take a look..

Dow Jones

Dow Jones

Using the Dow Jones as a representative example again, we can observe certain developments just over the last two trading weeks, that change the negative outlook from the worst trading week of the year (1st week of trading in Jan. 2016) only until the end of the same month. This index has developed a strong divergence over a years-long period and was therefore doomed to see some type of correction. This has been explained already at length using Gold as an example.

We have been in this correction mode for some time now, just recently seeing a relatively drastic downmove after a fractal sell signal occured. Still, World Indice markets weren’t able to keep up their pressure towards the downside and seem to have come to a halt now. They haven’t been able to break through the important

Nikkei Index

Nikkei Index

support levels, marked by all the fractals indicated in the charts. Prices have been bouncing off the same area for a long time now (Dow Jones: since 02/2014) and they seem to continue to repeat this action. Any shorts on higher timeframes looking for a bigger market movement should’ve become cautious with their stops at the end of the last trading week already, and now it seems to be high time. The probability of these markets continuing their strong downmoves shrunk quite a bit with a trading week closing at relatively high levels, really showing a bounce off of support levels as indicated. This is also supported by the large amount of fratals now occuring in what seems to be a sideways market. The Dow Jones Index unfortunately ruins this fact a little bit, since the previous uptrend was such a slow-moving market, that kept on retracing into the support areas marked by the moving averages. Therefore there was enough time to also form quite a few fractals in what actually is a trend moving higher and higher. Still, the typical feature of a consolidation phase is a high fractal dimension, this is what we see in the Indice markets right now. Plus, not being able to move through the support area to the downside due to the heavy support level, these markets could be bound for a sideways move in 2016 not yielding any good trading opportunities for trend traders.

Dax

Dax

However, nobody knows what might happen next in the major stock markets around the world, and it doesn’t really matter. If you want to be a successful speculator, you will ride on any wave occuring, no matter in which direction and market. In the illustrated markets this also means going with the flow and getting out of positions according to your rules. You have entered the trade by your rules, you are exiting it by your rules. It absolutely does not matter what different kind of emotions appeared while the trade was going on: especially when markets are dropping rapidly in a short time, traders tend to be emotionally overwhelmed. They are drawn into thinking in dreams

WTI, Oil

WTI, Oil

and unrealistic scenarios while the trades are accumulating profit. Because the trader doesn’t know at which level his system will eventually get him out of his trade, the expectations buildt up through “trade-dreaming” can only lead to disappointment, no matter what the outcome of the trade will be. The reality of the market pretty much never corresponds to what you think the market will be doing. If you have a winning position, you always wish you had a bigger position on, if you are in a losing position, you wish you had a smaller position on. Indicating that you are never really right on any trade, you are only exploiting your edge in the markets, profiting over the long haul.

The current market movements in the World Indices were absoluteley predisposed to evoke these kind of emotions. Being caught up in them, being controlled by them, instead of controlling one’s emotions, can lead to disregarding one’s rules, and actually not seeing what should be done to really follow through with what the trading plan says.

I guess for many bears the past two trading weeks put an end to their shorts, now staying on the sidelines waiting to become bulls, or maybe nothing at all, in case they are flexible enough to know when to get out of a trade.

At this point when a move has ended in one direction a pause for the trendfollowing trader will come into being. There will most likely not be another trade in the opposite direction right away. Instead trading the trend means lying in wait and starting the hunt for profits when the markets show the right setups.

In the meantime one of the other dozens of markets in the trendtraders portfolio will be looked at. There usually is a trend occuring in at least a few of them at any time. And if not, you still have to just adapt your thought process, emotions and actions to current market behavior. Forcing the market into a direction and pressuring yourself into a specific position, can only go wrong, because the individual trader really has no say in what the market will do next. Only as a mass of humans behaving like we do including our desicion-making process, do we move the market and make it what it is, sending it to the levels whereever it trades. The individual trader him/herself can only go with the flow, and take whatever the market offers.

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