Adapting To The Market For Profits
Have you noticed less momentum, more whipsaw, smaller trends and more ranging markets lately?
In today’s charts, I want to show how some subtle market changes can eat into your profits, and what you should do about them. We must adapt to maintain our profitability.
This blog post will help you gain & maintain profits in current conditions.
Markets are continuously evolving, they never rest, and they never remain constant.
Traders must maintain a sense of current market action, and monitor for changes. Trends change, volatility changes, momentum changes. All of these have an effect on profitability.
DOW & Gold charts, ATR
We are fortunate that Fibonacci and TRSI automatically take changes into account, because they both use price action to help us control risk and take profits. However, there are some long-term subtle changes that we should take into account when we plan our trading strategy.
Start with the DOW and Gold chart on the left. These are monthly charts, showing a strong rally by both of them, with an up-trend on the TRSI. The TRSI has been pointing the way to profits, but what I really want you to notice is the Average True Range (ATR). Both of these charts are showing a dramatic drop in ATR. You would find the same ATR pattern on the weekly chart.
EURUSD & USDJPY, ATR
Now look at the second chart showing EURUSD and the USDJPY monthly charts. It’s the same picture, the ATR is dropping fast! USDJPY is the down-trending chart on the left, and EURUSD is the rallying chart on the right.
As usual, the TRSI is reliably showing the trend of the chart. Whether in an up-trend or down-trend, the ATR is dropping aggressively. 2009 is a year of falling ATR.
GBPUSD & Oil, ATR
Just to prove the point, I have also supplied the GBPUSD and Oil (e-mini crude) to show the same phenomenon. ATR is plummeting!
Whatever you are trading, look at the monthly ATR. Pay attention to this, the markets are changing.
What does it mean? World-wide, many trading instruments are trading in smaller moves, less momentum, shorter trends, lower volatility. There are practical implications for traders, and it may be showing in your trading account.
If you are not adapting, you are taking more losses and making fewer profits. Your trades are moving slower (less momentum), and you experience more whipsaw.
We can expect lower momentum, with more consolidation and trading ranges, overall less volatility.
What should you do? As long as this pattern continues on monthly and weekly charts, we must capture smaller moves. Generally, our profit targets should be closer, and our exits quicker. If we are entering on a trend, we can expect smaller retracements for quicker entries, and overall, smaller moves to nearby profit-points. In general, we must be more nimble, ready to take a profit and re-enter if the move continues.
Members of DailyForexCharts are constantly updated on market conditions, and traders who have studied my seminars on Price Action and TRSI trading are well positioned the adapt with the markets.
Monitor the markets, price action tells you everything!
-Neal “FibMaster” Hughes.
