Technical analysis of the markets and opinions of what stage the markets are in are always available to you. My advice is always to just trade your plan. The plan must have rules that are absolute and can be followed and understood by anyone.
When I speak to traders, I always tell them how important it is to wait until the close of the bar to determine the indicator value in order to know if a trade rule has been signaled.
The close of the Nasdaq on one particular day is a good example. The index was so close to the 50 day moving average, that no one could have known if it would close above or below the 50 until prices settled. With 10 seconds left in the day, it was above, while 10 seconds later, it closed below.
Now, let’s look at the numbers. At the close on Friday, the Nasdaq 100 or NDX closed at 3560.10. The 50 day moving average is at 3560.88.
Now here is my question for you. Is 3560.10 less than 3560.89?
The answer is yes, it is. If I had 100 people in a room and asked them if 3560.10 is a lesser value than 3560.89, I believe that I could get everyone to agree.
Could I get everyone to agree that the market is going to go up from here or down from here? I doubt it. Could I get everyone to agree about the size of some candlestick? I doubt it. Could I get everyone to agree about the loss of momentum (one of my favorite “vague terms” you hear on TV and radio all the time)? I doubt it.
Trading a plan is about trading absolute values and having the discipline to follow your rules. Let’s say my rules say that when the value of the close of the NDX is less than the 50 day moving average, exchange from long NDX funds to short NDX funds the following day.
An argument can be made that this 50 day moving average is support in the NDX as it has been in mid- July 2013, late August 2013, late September 2013, October 24, 2013, 15th November 2013…etc . The NDX could have hit a top and never see this level again. In either case, it is much easier to follow a set of predetermined rules than to guess or have 100 people argue the economy, the dollar, interest rates, the election or any other issue. I know what I am doing Monday.
What if the market reverses and continues back up again? Very simple, I follow my plan and on any close back above the 50 day moving average I will go back to a long position.
The other part of the Core Position is in the S&P 500. What am I doing there? Very simple, look at the chart. The S&P 500 is above its 50 day moving average and I will remain in my long position. The balance of the account other than the Core Position is balanced in asset classes that are still performing in up trends like the S&P 500.
A Plan, Discipline, and Risk Management. That says it all.