Adjusting to Market Conditions

Who would have thought that the euphoria most traders experienced towards the end of last year as the S&P500 was marking fresh all-time highs, could possibly change course and start to behave in a very much different way to what would be expected.

 If you've been around long enough you know the feeling when a market does an about turn and changes the way it trends. First you keep reassuring yourself that you can’t win every trade, then you begin to start doubting whether your system is as full proof as you thought and finally you become frustrated as the losses you start to incur begin to eat away your hard earned profits.

There are 2 aspects which I would like to address in the paragraph above:

1. Mental capital is crucial when a market begins to change direction. If you’re not in the right frame of mind; that doubt that I was talking about starts to set in and has the possibility of unfolding your trading plan. When a market is in a phase of changing its conditions you need to be aware of the impacts those changes have on your system and whether your system remains valid in the current market environment. It doesn't help you implementing a trending system in a non-trending market; the results will simply distort your performance of your system. Which leads me to the second point:
2. Understanding that markets never trends in a straight line is important not only for your emotion well-being but for the bottom line. One aspect which I feel isn't highlighted enough is the fact that different market conditions require different systems that suit that particular condition. Being aware that the market has the ability to change its characteristics is one thing, knowing how to deal with those different characteristics is another.

My personal experience with these 2 aspects is what encouraged me to write up about them. I recall at times when the market was on a never ending trend upwards which would make my profits nice and fat, the next minute it seemed as if either someone had turned off the tap with all the lack of momentum or some unforeseen event turning the market from shiny to absolutely ugly.

I must admit that until a few months ago I only had a trending system in place and thus when the opportunity presented itself I tasked myself with finding out how I would be able to deal with these obstacles and glad to report back that I have since made progress. Although I have placed a fraction of the trades I normal take, I do believe that in the long run this recess in my trading only serves to increase my ability to trade better. 

If you would like to contact me you can send me an email at cadetrader@gmail.com or follow me on Twitter @CadeTradeR I would really enjoy hearing your stories and progress.