Brandon Wendell, CMT
Brandon Wendell
Traders and investors in the Indian equity markets have been enjoying watching as prices have been breaking to all-time highs. Of course the big question in everyone’s mind is where will this bull run end and is there anything I can do to protect my capital when it does? While no one can predict exactly where this price movement will reverse since there is no supply level above to signal this, there are some tools that traders can use to identify when the bullish pressure has subsided and therefore marked the time for profit taking in your portfolio.
One of the most common methods is to use a moving average on your chart. The average summarizes the past trend and momentum and when prices start breaking down below it, you have likely seen the end of your trend. There are two problems with using moving averages. First, they are lagging and give very late signals. Secondly, since they are lagging, you are likely to have given back some profits you have made in the previous trend before you exit.
To reduce the lag and hopefully exit with more profits, many traders will look to advanced technical analysis tools such as the Fibonacci Extension tool. This uses the Fibonacci numerical sequence to project probable price points in the future where price may turn. The problem is that the price may only use these areas as pausing points rather than reversal areas and you could be exiting prematurely.
Price is usually the best indicator. Using the definition of a trend can help you identify when the trend is reversing and action is needed on longer term trades and positions.
Again you can see that using this method will not necessarily get you out with the greatest profit but it will protect your money against a large drawdown. Perhaps a combination of the above methods would be a better plan for your trading and investing. To learn more on how to identify market turning points and timing these turns, join us at one of our courses at Online Trading Academy today.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD remains offered below 1.1800, looks at US data
EUR/USD is still trading on the defensive in the latter part of Thursday’s session, while the US Dollar maintains its bid bias as investors now gear up for Friday’s key release of the PCE data, advanced Q4 GDP prints and flash PMIs.
GBP/USD bounces off monthly lows near 1.3430
GBP/USD is sliding in tandem with its risk-sensitive peers, drifting back towards the 1.3430 area, its lowest levels in the month. The move reflects a firmer Greenback, supported by another round of solid US data and a somewhat divided FOMC Minutes.
Japanese Yen hangs near one-week low vs. USD amid worries about Japan’s fiscal health
The USD/JPY pair gains positive traction for the second straight day – also marking the third day of a move up in the previous four – and climbs to over a one-week high, around the 155.35 area, on Thursday. Spot prices, however, retreat a few pips during the early European session and currently trade just above the 155.00 psychological mark, up nearly 0.20% for the day.
Editors’ Picks
AUD/USD shrugs off losses, retargets 0.7100
AUD/USD partially fades Wednesday’s pullback, managing to regain balance, leave behind the earlier drop to the 0.7020 zone, and trade with modest gains ahead of the opening bell in Asia. Moving forward, the preliminary PMIs will be the salient event in Oz on Friday.
EUR/USD remains offered below 1.1800, looks at US data
EUR/USD is still trading on the defensive in the latter part of Thursday’s session, while the US Dollar maintains its bid bias as investors now gear up for Friday’s key release of the PCE data, advanced Q4 GDP prints and flash PMIs.
Gold surrenders some gains, back below $5,000
Gold is giving away part of its earlier gains on Thursday, receding to the sub-$5,000 region per troy ounce. The precious metal is finding support from renewed geopolitical tensions in the Middle East and declining US Treasury yields across the curve in a context of further advance in the Greenback.
XRP edges lower as SG-FORGE integrates EUR stablecoin on XRP Ledger
Ripple’s (XRP) outlook remains weak, as headwinds spark declines toward the $1.40 psychological support at the time of writing on Thursday.
Hawkish Fed minutes and a market finding its footing
It was green across the board for US Stock market indexes at the close on Wednesday, with most S&P 500 names ending higher, adding 38 points (0.6%) to 6,881 overall. At the GICS sector level, energy led gains, followed by technology and consumer discretionary, while utilities and real estate posted the largest losses.
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