Steve Palmquist.Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.
I got a panicked email from a trader worried that the run ‘was over’ and he would not be able to trade long positions for ‘weeks’. First, the market moves in waves. It is normal for it to run up, then pull back then run up again. There is no way to know if a pullback will last a couple weeks, or a couple months. Secondly, traders can generate profits when the market is going up, or down. With the right set of tools it should not matter to a trader which way the market is going. Third, panic is incompatible with trading success. I just look at the markets price and volume pattern, form a trading plan that switches between different tools for different market conditions, and then implement the plan. Panic comes from ‘needing’ the market to go up, and not having a set of trading tools for different market conditions. The market does not care what we need or want, it will do what it wants. This is why we have different tools for different market conditions and switch between them based on what the market is doing. If the market direction is really, really important; it is usually a signal that the trader is using the ‘hold and hope’ approach rather than adapting to the market.
In order to trade confidently in different market conditions traders need to understand exactly how and when their trading patterns work. Testing different tools, and understanding how each trading tool performs in different market conditions, allows traders to make effective use of each tool in the trading toolbox. If traders have not tested their tools in different market conditions they are taking unknown risks. Back testing does not guarantee future results. There are no guarantees in trading, and no way to know if any particular trade will be profitable or not. Backtesting helps remove some of the emotion, hunches, and unknowns in trading. It can show you how a particular system has performed in different market conditions in the past and what types of filters may be most interesting in prioritizing trading opportunities. Examples of six complete trading systems and how they perform in different market conditions is covered in ‘How to Take Money from the Markets’. The knowledge of what to expect from a trading tool, and seeing how different trading tools perform in different markets allows traders to adapt to the market rather than just guessing what to do.
Steve is the author of two trading books: “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. “How to Take Money From the Markets, Creating Profitable Trading Strategies” in which he uses the results of extensive backtesting techniques to smash trading myths and get to the truth of what has worked and what has not. The book provides six fully analyzed and tested trading systems and shows how they have performed in different market conditions. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques.