The Trend is Your Friend

Wednesday, Mar 14, 2012


More often then not, "The Trend is Your Friend". Anyone listening to the Fed and their accomodative stance and what that is doing to equity prices? Anyone ever hear of another tried and true adage: "Don't Fight The FED!".

A quick look at fundamentals - the economic calendar is busy. Please look at the sub-components of Philly Fed and Empire Manufacturing tomorrow. We also havew weekly claims and inflation data. Again, the Fed has told us there is absolutely no inflation out there, so to offset the 30% gain in oil prices, make sure you ask your employer for a raise!

Technicals: yesterday we had a trend up day in equities. The trend NEVER backed off. Yesterday, we had a trend up in the GBP/USD, but that trend did back off. It backed off after the Fed announcement, held its ground and then started back in the direction of the original trend (up). Here is the chart:

Past performance is not indicative of future results

So, the original trend up was retraced and then it found support at the 50% mark. Remember, we had 120 pips up as the equity markets rallied, then the statement and a 60 pip downmove. Was 60 pips down too much? Obviously as the trend caught itself and resume going up. Fibonacci's don't tell you where to trade and they don't guarantee winners, they just tell you HOW MUCH a trend has been retraced and it is up to YOU to decide to use a certain Fibonacci Retracement level with the analsysis you conduct at that very instant. It is up to YOU to decide how many pips to risk and how many pips to go for on the gain side as you conduct YOUR analysis of that very situation.

You all know I am a green person and a green investor. Here is a Fibonacci on a stock chart. STP went from 2.70 to 3.06 - a 13% move in a few days. Its support level is currently at or just below the 61.8 level.

Past performance is not indicative of future results

Is a 13% return in a few days a good return? Regardless, there are no guarantees and it could have gone lower, so how much risk were you willing to take on? How many shares or option contracts did you do for your account size? Is 13% good enough for you or do you think it will still go higher? These are all questions that are necessary to answer prior to or during the trade!

The point is, remember these adages - the trend is your friend and you will be swimming with the current and not against it.

Remember, every trading entry needs a plan with stops and targets as trading with the trend does not guarantee a successful outcome. Losses are expected and we must be OK with "being a loser" in the financial markets. Good losers are the best kind of losers! So go ahead and say it. I am a good loser!

Click here for a webinar on Fibonacci's

Happy  Trading and Be Environmentally Cool

Coach Brian

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Posted By: 

Brian Kahn

Brian provides regular commentary focusing on the relationships between various financial markets. An experienced trader and portfolio manager with over 15 years in the markets, Brian relies on fundamental and technical analysis to create trading plans for each and every market entry.