Living in Sydney, I expect this time of year to be hot, humid and filled with outdoor events but this year we have endured a cool and rainy summer, which has been both frustrating and and boring. Similarly, the markets haven’t quite delivered what we would expect, with no substantive Christmas Rally in the Australian market and a distinctively sideways market in recent weeks. One could be excused for being bored with the markets and spending time socialising rather than trading, but when this market does break out its sideways trend, there will likely to be plenty of good trades and I want to be ready.
I could illustrate the recent sideways move with the SPI or any of a number of stocks but have chosen to use Westpac Bank in Chart 1 below, as I know many traders are stalking a weekly short setup.
Chart 1: Westpac Bank Daily Bar Chart with sideways action
click to enlarge
In sideways periods such as this I become impatient and start looking for trades in new markets and perhaps taking trades that don’t quite follow my Trading Plan rules. Does that sound familiar at all? (If you are saying “What is a Trading Plan?”, then now is a good time to write down your rules for trade entry and exit as well as your risk criteria and money management.)
Your Trading Plan should also include your goals for the year. If you have no idea what you should be aiming for in your trading, then back-testing your Trading Plan rules over a period in the market will help you determine what is possible.
Each of us should focus on certain markets to gain greater insight over time and these should be specified in your Trading Plan. I specialise in a few Australian Banks and I also follow Silver, (which is currently at break-even in a long setup). This diversity keeps me busy - when there are no trades on stocks, there may be a trade on commodities, and vice versa. Be careful not to follow too many when you start out as this can be overwhelming and dilute your attention.
Wherever you live (and whatever your weather at this time of year), the start of a new year is a good time to re-focus your trading. Set yourself some goals, choose some markets, write down your trading rules, and be ready when the trades come.
It’s the Journey