2009-04-21: Arm yourself in unpredictable times
Fundamental analysis has a broad appeal as it aims to explain why prices move in the direction they do. However, there may be times when market conditions are more challenging than usual. There are many pointers indicating what direction the energy prices will go. There are many equations that affect the energy prices and the pointers affect the energy market differently as years go by. The energy market we see today is getting more and more complex, and the demand for technical analysis to complement a fundamental approach to the energy market is increasing.

An economy is rarely stable. Generally, it is either expanding or contracting. As a result, energy markets, which are more and more influenced by changes in financial markets, also are in a continual state of fluctuation. Technical analysis involves a study of the action of markets; it is not concerned with the difficult and subjective tasks of forecasting trends in the economy, or assessing the attitudes of traders towards these changes.

The ever-changing character of the economic cycle creates opportunities for investors and traders. But obviously, the more dislocated and volatile an economy becomes, the larger price fluctuations are seen.

Volatility can often be sparked by economic events. Market participants may interpret fundamental data differently, and the market has a dissimilar interpretation and positions are violently reshaped and shifted. These tend to create possibilities for some and losses for others. The technical approach is by no means infallible, but a careful, patient and objective use of the principles of technical analysis can put the odds of success very much in favour of the trader who incorporates these principles into an overall strategy.

Almost all areas of trading will seem to be a struggle at some time. When markets are more volatile than you like, you will be struggling against the trading environment. The key is to be aware of the environment and situation you are in and make decisions when the conditions favour your success. You must accept that you will never achieve perfection in trading. You will never be able to make money on every trade. You will never encounter an ideal market. However, this does not mean that you will not succeed and be profitable over time.
To be successful, you need to apply a trading style that is comfortable for you, find a system that you have confidence in and select markets that offer the opportunities and rewards that you seek. Above all, you need to trade decisively.

There is no way to control the environment in which you must make decisions. Imperfect conditions are the normal state of the markets and there are always factors beyond your system’s input that can affect your trades. You must have confidence in your trading system and be committed to its signals, even knowing that your results will occasionally be affected by events beyond your control. If you try to trade only during times of perfect information, then you have effectively decided not to trade at all.

Trading strategies will run regardless of the current market conditions, with various strategies designed to limit losses in market conditions for which they were not designed. The reason behind this is one do not know which trade will be a winner or a loser and that performance numbers are valid in the long run when tested appropriate and therefore every signal should be taken into account. Only in hindsight one will know if the "directionless market" developed into a trend. Markets move in trends caused by changing attitudes and expectations of investors and traders with regard to the business cycle. Since players seem to repeat the same type of behaviour from cycle to cycle, an understanding of the historical relationships between price averages and market indicators can be used to identify turning points.

Through an overload of information it may be hard to see what pays off in the long run. However, strategies that work over time may become a powerful tool, and guide you through stormy weather. There are always periods of drawdown, but when the trend again reveals itself, your chances to be on the right side of the curve when taking position increases.