Oh! Give Me A Sign, Just One Sign Please

QUESTION :

Clearly the markets have turned for the past few weeks. What indicators do you trust the most that you will be looking at to indicate the trend has started to shift back up? Kong Hei Fatt Choy to ZL and all in BT.

Thank you ....... from Tradereng

ANSWER :

Hi Mr Eng,

Or would you rather ZL adress you as Tradereng (it read like a misspelt .... hehehe :D

Clearly, the markets have turned decidedly toward the bears in the past few weeks. It has become a true trader’s market. Since I am not “true” trader, meaning my bias is toward the long side, or 2b more specific LONG MINDSET, my choice is to sit it out.

Before doing so, though, I did pack away some cash for that time when things settle down and bargains are aplenty. That time will come. In the meantime, for those of you who are trading, loving it, and looking to make some money, lots of opportunity awaits in these uncertain market and volatile markets, which brings us to the question above.

For me, the only indicator I trust in these markets is volume, and it is the one indicator I believe will tell us when the flow is shifting. In these markets, volume is a barometer because lots and lots of cash is seeking haven in the so-called “safe zones.” The U.S. dollar, gold, crude & agri oil are some alternatives where the flight to safety ends (although this generality is slightly off here with gold), and these are solid trades, but when the money goes away from equities, it leaves the equity market fending for itself. So, look for heavy volume, and that will point to your trade, whether it be in the broad-market, or in a particular market. Light volume combined with price-action (or lack of) is a creator of volatility (you traders love it), which brings me to derivatives such as FKLI & FCPO.

Track the activities (volume) in these 2 markets specifically. Find out where the spreads is betting on, and how much (in volume) they are betting. This is a solid barometer of potential market direction, the flow of money, and sector valuation, which brings me back to equities.

MACD and Stochastic are two other indicators that might prove helpful in these environments. Both attempt to define momentum, which is, of course, a hallmark of a trader’s market. But, again, for me, if you are looking for “the shift,” whether that shift is definitively down or definitively up, look to volume. When the really big money gets back in the game, the broad-market tends to solidify, steady, and then chart a more predictive course.

Specific markets are a different story, but the barometer remains the same – volume indicates movement in one direction or another.

Wishing you Happy Trading & GONG XI FA CAI

Regards,

ZL