Click here to This week's blog is a little bit different from the last couple of weeks posts. This week I'm going to focus a bit more on the current market.
I talked with one of my trading buddies earlier in the day around the US market declines over the last couple of days (on the evening of 11/5/21 AEST the US markets are down around 4% overall). It's a bit of decline, and you can see the tone of many comments across the various groups and forums I follow. There is a bit of panic setting in. My buddy made the observation that everyone seems to be looking for a reason to panic and sell because it's the expectation that the next big crash is around the corner. I suspect he has a point.
Anyway, I think this is a great observation and probably an insight into the psychology of the masses (I feel that I talk about psychology in every post, it must be getting a bit repetitive dear readers 😊). That being said, I think a pullback like this (at this point in time, there is nothing to suggest it's anything but a pullback) is an excellent opportunity to manage your positions and potentially open new ones. Keeping in mind the Oracle of Ohoma's wise words of "be greedy when others are fearful and fearful when others are greedy".
To keep things simple, I'm going to focus on my home market of the ASX.
The ASX (I'm using the XJO – S&P-ASX200) has just broken its ATH on Monday at 7172 (although I'm told if you add in dividends, we're actually quite a bit higher).
Todays 1% move down, essentially sees the XJO just slightly above Monday Open and around the high point of Friday. Nothing to worry about here.
In addition, the overall trend is still up and the Bollinger bands are starting to expand again after tightening last week.
To be honest, the ASX actually looks like it has broken out from a range it was stuck in over most of April.
All in all, I think these are pretty bullish markers currently. But I guess time will tell.
So what am I doing with this market.
You can see from my analysis that at least for XJO there is nothing much to be concerned about yet. I think today's (and likely tonights – 11 May 2021) will likely continue down, but unless we see a fall below the 50 day MA (currently around 6900) I think nothing to see here.
Since last night, I have seen around a 2% pullback in my account. To be honest, I'm not overly worried about this; it's part of the game and to be expected as a trend follower. Even if the market continues to fall, I've got my stops set, so I'm not stressed. I know how much I'll lose, and I'm comfortable with that. I also trust the system that I have built and backtested.
I think, to be honest, the motto of a trend follower should always be, expect the unexpected! Essentially trust your system, set your stops and let the system ride out the storm. If the decline continues, expect lots of stories about why it is happening. At the end of the day, this is just noise, often made up to drive readers/viewers/listeners etc.
So, in summary, I don't think there is anything to be worried about just yet. But I'd suggest that you check your stops and be prepared for anything.
Anyway, I hope you've found this helpful.
Nick the Trader Guy