Overview
In this weeks
newsletter we will review the DJIA and the
trading system described over the last few
newsletters.
Review
Newsletter
44 - technical indicators and the DJIA
Newsletter 46 - showing the end of the DJIA
uptrend
The DJIA chart
In the following
chart below we can see that our conservative
approach has paid off. As the uptrend ended
(as seen in newsletter 46) we can see a
period of consolidation (sideways trend)
followed by a false breakout and a violent
sell-off.
It is important
to note that there is no reason to panic
when drops like this occur. In the case
of the DJIA the technicals were clear or
your stops should have gotten you out. If
you were not watching, this is where you
get to blame yourself and promise to always
watch your investments.
If you get out
too early in an uptrend (ie: the down was
a correction) you can always get back in.
If the downtrend is real then you will be
very happy to be out that little bit early.
In the case of the DJIA a trader could have
stayed in longer but risked the massive
sell off (a risk I would rather avoid).
If a trader rides out this drop (aka buy
and hold) then potentially all the profits
will be lost. The point is that a trader
should be always with the trend and when
the trend changes so should the traders
position.
Once again this
conservative system removed my risk and
now I gleefully watch the index drop. The
further the drop the better my profit potential
when the new uptrend shows up.
Corrections are
inevitable and it is through technical analysis
where a trader can stay on the right side
of the trend. Without corrections there
would be no point to trading, we would all
be investors.
In the case of
the DJIA (and it's components) we know that
these companies will not disappear in the
near future so a good downtrend should provide
us a future opportunity, we just need to
wait for it. The historical support and
resistance lines will give us a clue as
to when a trend reversal may occur.
The entry
and exit points (a brief walk through)
If we look closer
at the last 6 months we can see the events
and how this conservative approach has worked.
In this trading
system we are following the major trend.
There were some opportunities for those
trading shorter swings after the sell (to
do this shorten your parameters) however
this system is a conservative system. It
is intended for the primary trend and using
very large issues.A trader will need a list
of companies to keep their money working.
The DJIA components
(July 27, 2007)
(click
for larger image)
If we look at
the components we can see that they are
all down. Not to worry though, these are
large companies and should see the sun again,
and when they do we will be ready to hop
back in.
If you have any
questions or comments post them at our Yahoo
discussion group.
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