2008-11-12: Strategic trading guides you through
It has been a rough autumn in the energy markets. As market volatility increases, so does the potential for increased profits – and losses.

An increase in market volatility often leads traders to find a lot more trading opportunity. The energy markets swing lot of potential for gain, but also for loss, especially if traders do not take the necessary precautions. The wild ride this season has burned many, some more spectacular than others.

In volatile market conditions it is important to stick to your trading strategy.
What ultimately separates winners from losers is discipline in its many and varied facets.
To have a consistent schedule and then following through on it, is essential. This means staying up-to-date on the signals your systems generate.

During phases like these it may be an advantage to focus on a variety of strategies being active in different market modes. Whereas a short term strategy may be highly exposed to great price swings, the more long term strategies may filter out noise and take advantage of the major market trends. Placing trades can be a nerve wracking experience, but with the use of a long term trading plan, this may be a stress reducing tool that enables you to trade through hard times. The history of your trading system may give you relief in these days, moving your glance from a single trading session and over to a long term perspective.
In the long run you will succeed!

In practice, it is impossible to buy and sell consistently at exact turning points, but the enormous potential of the technical approach still leaves plenty of room for error, even when commission costs are included in the calculation. The rewards for identifying major market junctures and taking the suitable action can be considerable.

The technical approach to trading is based on the idea that prices move in trends and are determined by the shifting attitudes of participants towards a range of economic, political and psychological forces. The art of technical analysis is to discover a trend reversal at a rather early phase and ride on that trend until the weight of the evidence shows that the trend has reversed. The evidence here is the indicators.

The challenge of technical analysis is that there are literally hundreds of technical indicators available. There is no single indicator that can be considered generally best, as each particular indicator may be applicable only to specific conditions. Some indicators may be relevant only to certain market modes. A set of indicators forming strategies that perform consistently in short and in long term markets, in bearish and bullish modes, is of great value.

To trade a set of strategies tested for different market modes may turn out profitable over time. Trading strategies run regardless of existing market conditions, but each strategy should be designed to limit losses in market environments for which it was not considered. Strategies that incorporate the use of stop orders as a part of their exit logic, downside losses can be minimised and profits can be locked in if the market moves against you. Sometimes one may question the use of tight stops in volatile markets as the large price swings increase the likelihood that the position will be taken out. However, tight stops can provide sound risk management in times of extreme volatility. Players using stop orders end up losing less money than their counterparts and take bigger profits in the end. One does not know which trade will be a winner or loser. Only in hindsight one will know if the directionless market developed into a trend.

All price movements have one thing in common; they are a reflection of the trend in the hopes, fears, knowledge, anticipation and hunger of market participants. The sum of these emotions is uttered in the price level, the level of what people think the traded entities are worth. The technical approach is by no means foolproof, but a cautious, enduring 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.