Relationships Changing?…Stick to the Bear Market Rules
Yes the markets did seem a little off kilter earlier in the week with stock indices and AUD continuing to fall while first GBP, and then EUR rallied. Is this shift a new paradigm which we need to change our analysis over? No, and never. We teach our clients to only take signals in the market they are analyzing/ trading, and never to take a signal in one market based on behavior in another market. Trade price and trend.
Every time one market zigs and another zags bloggers note it and post copy on it to keep the website hits flowing. The question of whether market relations are changing always reminds me of the old saying “this time it’s different”.
Well this time, it’s not different. The bear market rules still apply, which means you only want to take long-term positions that do not conflict with a falling stock market. Corrections in speculative markets by nature most often start out faster than price movement in line with the primary trend. Several reasons for this, the primary being there is always much more money going w/ the trend than against it. When that money takes a profit it tends to be larger “size” hitting the market which causes bigger moves. I see the current rallies in EUR and GBP as just that, and believe we need to keep our eye on continued weakness in stock indices in AUD and trade accordingly.
To attend Jay Norris’ next webinar go to: July 8th Webinar
Jay is the author of Mastering the Currency Market, McGraw-Hill, 2009 and a Trading Instructor at Trading-U.com. To see the details on our just released course go to Trading Course
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.