Talking Points
-Second half of 2013 was not conducive to trends
-Adapt trading strategies to market conditions
-Trade small until the opportunities are clear
H.G. Wells should have been a trader with the quote: “adapt or perish, now as ever, is nature’s inexorable imperative.” Trends change, fundamentals change and so too do market conditions. In 2013, there were far fewer persistent trends and serious price swings – particularly in the second half – than in previous years.
I prefer trading on daily charts; following dominant fundamental themes play out. This naturally puts me in a position to place trades that last a few days up to a few weeks with objectives that are often five-or-more times greater than a pair’s average true range (a gauge of volatility). Yet, looking for such big moves in an incapable market is not the foundation of a successful venture.
I have a good rule for trading that when one of the essentials for my strategy is absent – fundamentals, technicals or market conditions – my trades are initiated in a smaller size, only to be built up should conditions turn more favorable. Yet, after an extended period of making these size adjustments, I should have realized that the nature of the markets had changed.
I grew comfortable in the ‘system’ without critically reviewing its efficacy – anecdotally, a common pitfall for automated systems traders. Rather than try to fit a square peg in a round hole, I have adapted my approach to looking for short-term trades with respect to my chart time frames, expectations for ‘themes’, and interaction with fundamental event risk.
It is important to recognize that this is not a permanent change. Rather, it is a change for the conditions I’m confronted with. Should the markets provide bigger, more consistent trends in 2014; I’ll adapt back to my ‘comfort zone’.
Written by John Kicklighter, Chief Strategist for DailyFX.com
Contact John via Twitter: https://twitter.com/JohnKicklighter