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Friday, March 28, 2008

Charting 101: The Importance of Trends

Challenge Accounts:

Investing Account Balance: $201.46

Stock / Futures Trading Balance: $684.39
Online Savings Balance: $12.07

Personal Trading Thoughts: Cash. No positions. I'd say that primarily, today, I have a short to bearish outlook. But it 'feels' as if some semblance of normal volatility has returned to the markets. But 'feelings' can often be wrong. I expect the market lower today. I'm keeping a close eye on volume. It's been descending in the previous rally, so if volume picks up when the market is heading lower? I'll keep that short-term bearish outlook. As far as the commodity markets? I have a 'long bias' and don't see anything on the horizon, though this can change at any time. I have this 'gut' feeling we are in the eye of the storm.

Personal Investing Thoughts: Cash is my largest position. I still hold all of my long term stocks. But I have a bearish outlook for the market. I should say that I'm prepared for a 35% drawdown from the highs. But who knows, as bottoms are a process, not an event. The market could bottom here. It might not. I prefer to bide my time and wait. If the recession is a short one (1 year) then the bottom could come any time as the market will be the first one out of the recession. If the recession is longer (2 years) then we haven't seen the bottom yet. I leave the predicting to God. I might take a nibble soon, but that's all it would be. A nibble.

Yesterday, I discussed the different types of charts, and why I prefer candlestick charts. Today? The topic revolves around 'trends'.

A major tenant of DOW theory is that the markets tend to 'trend'. What is a trend? What are the different types of trends?

Tomorrow I will discuss how to use market trends . . .

* * *

Investing Account Balance: $201.46
Stock / Futures Trading Balance: $684.39
Online Savings Balance: $12.07

Total Trades and Investments: 3
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $82.56
Average Loss: $82.56
Accuracy Rate: 33%
Average Reward: $179.75
Risk : Reward Ratio: 1 : 2.02

This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research and tolerance for risk.

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