It is during times like this I have to keep reminding myself to STAY PATIENT. This is a very difficult market cycle, one of the toughest I have ever traded through. Why do I say that? Several reasons.
First, We have never in recent years had markets manipulated to the degree that they are right now. There is not a thing you can do about this other than recognize that it is happening, then ignore it! That may seem like a contradiction but it is not. There is no sense getting worked up about something you cannot control. Our job as traders is to constantly adapt to what is at hand. Whether this is the FED or some other controlling group pushing things it does not matter. The trends are in place. It is very important to focus on your trading techniques and stick to them. You will likely have a lower percentage of wins to losses than in a normal market, but the wins should be larger than normal and as a result you can still come out ahead.
During normal market conditions you can trade reversals and do pretty well, but as with all approaches, if you only have one way of doing things, the market will have a cycle that carries you out. You need to be able to trade with and against trends when it is appropriate. I personally have cut down my size dramatically in recent months, especially on trades against trends. This has saved me a fortune quite frankly. This is just thinking on your feet.
Second, and this ties into the first reason, we have extraordinary trends going almost across the board right now. Although this is not a bad thing, moves this strong do not give alot of chances to hop aboard. You almost have to take the first little twitch that retraces, then hop aboard as we blast out of it. It might only be one day after a run of 8 closes up, that closes down. Our gut tells us to wait for more of a pullback, but in trends like this that often does not happen. This is where you have to trust your signals.
Third, many fundamentals often tell you the trends are about to end and give you many false alerts. This can cause you to exit longs too soon, or even get short prematurely. There have been many ADX > 60 readings and many Tom Demark Sequential sells, that have failed. Historically these have been great tools for giving us a warning of a trend ending. These tools are essentially worthless at the moment. The COT report has also become worthless. We have seen numerous examples of record Small Speculator long positions in many markets. We have close to that in the chart above, the Aussie Dollar. You can see that in the past this has generated declines, so far NADA.
In summary, it is my feeling that the approach you have to take and one that I am taking is to be patient. Follow your signals, but do not force them. If you don't trade for a day or two, so be it. If you find yourself constantly fighting the trends, back off on your size but stay with your techniques. If you are using sound techniques, in time things will be ok. If you are just someone who likes to fight every trend, you might want to re-examine your techniques to see if they truly have an edge. It is ok to be a counter trend trader, and I do that more than I would like to. However, you just have to be careful, a 40 foot wave might look pretty but surfing it and staying alive is another matter.
The Aussie Dollar above does seem to be a market setting up for a decline. You can see a good amount of divergence in the momentum oscillator on the weekly chart above, and of course the COT stuff is bearish. The COT data is bearish in so many markets I am not sure it means anything since it has been for months and no declines have happened. There are times when extreme readings get reached that should mark exhaustion points, but we are not seeing that happen right now. I do have orders to short the Aussie in the market today, that do not appear to be close to being hit. They are below the current price by a good amount. I am not sure if the setup will still be there tomorrow.
I did get stopped out on my 10 yr position this morning for a measely 4 tick profit. Those markets are just not going to be able to rally as long as stocks stay this strong. However, they are setup still so I may take another swing if the setup is right.
One last passing thought, if I see one more of those foundation for a better life commercials I am going to scream! I cannot imagine the advertising budget they have, must be hundreds of millions of dollars a year. For the record, if my kid flopped at every sport and starred in a choir that would not work for me, but that's just me.