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A scientist, trying to save a little on the side. I am interested in high alpha trading strategies requiring little time commitment.
  • Observations On Trend Trading And Choice Of Market 0 comments
    Feb 7, 2012 5:11 AM | about stocks: GLD, OIL, BARN, SPY, QQQ, DIA

    Intermediate-term trend following (i.e, trying to catch moves a few weeks to a few months in length) in stock market indexes is singularly useful if you are also playing individual stock breakouts and want to stay on the right side of the market.

    However, if you don't trade individual stocks, there may be other markets which have cleaner intermediate-term trends, such as commodities. And, if you are willing to trade short-term swings, you don't need the aggravation of intermediate term trend following at all -- if you catch every move, you'll never miss a big one, with smaller risk to boot. (Compare, for example, the GLD chart with the SPY chart.)

    Then, the key to maximizing gains is to trade markets with clean short-term swings and the potential for big moves. Historically, such markets have certain characteristics:

    1. Deep
    2. Liquid
    3. Long-term up-trend
    And, historically, these have been leading stocks during most market conditions, and commodities such as gold and oil during bear markets with easy money.

    Originally by Stifel Nicolaus ca. Jan. 2010

    As of this writing, "quantitative easing" and other central bank policy interventions have reduced confidence in fiat money, putting a premium on gold and silver. However, every commodity has its own story: in the future, as the 3rd world develops and becomes more energy-hungry, oil may become a big trender as it was right before the 2008 crash. And, if the destruction of fiat money really is nigh, productive assets like farmland may temporarily spike.

    The key as a short-term trader is to stay agile in one's selection of markets, while not forgetting historically-derived trading principles and one's personal trading constraints.

    Stocks: GLD, OIL, BARN, SPY, QQQ, DIA
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