The trend is your friend?

Governments around the world did a fairly good job injecting funds into schemes to “kick start” their economies from the lows of early 2009. Eighteen months later we have seen a 50% retracement from the “Bear Market” through 08, with markets gaining ground nicely.

The steam started to come out of the market late 2009, transitioning from a nice bullish pattern into a sideways channeling movement. During this phase we started to see the hangover of the short 09 bullish surge.

Once the AXJO dropped below support at the 4500ish level in May 2010, the market shifted into a downward trend once more.

One of the biggest sayings in trading is “Trade with the trend – The trend is your friend”, the way we identify longer term trend changes is using the peaks and trough positions on the chart.

With that information, we must identify we are again with the Bears. So what do we do with longer term portfolios?

Three choices exist;

  1. Let it run, over the longer term the market will fight its way back to previous levels – provided the shares within your portfolio are sound.
  2. Exit your positions – bank your profits or cut your losses.
  3. Take an opposing positions to offset losses. This is called hedging.

Whatever you choose, make sure you take into consideration all the “pros and cons”.

The trend is your friend? Only if you recognise it and act accordingly.

Happy Trading