Wednesday, April 11, 2012

Patience is Key at Time of Conflicting Signs

When there are signs in the market that are in conflict with your decision, how do you act, this is a key question in trading.  For example, stock XYZ broke out after a couple of months consolidation with zoomed volume and upward trending 50DMA, your decision tend to follow xyz's breakout.  Sure, breakout means some sort of certainty, duration of previous trend can be evidence for certainty as well, the longer the duration, the more likelihood trend is about to change; plus the volume and 50DMA, the heavier volume is, the more reliable of breakout in terms of indication of new trend's direction.  But the conflicting sign is that broad market has risen continuously for a couple of months and due for a pullback, this usually means picture is not clear, and there are still uncertainties. but conflicting signs means uncertainties.  Trading is about being patient at most of time, waiting for uncertainties to clean out by passing of time, then take action at the right time when number of uncertainties are minimal regarding whether a new trend is about to start or not.

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