Time to tread carefully?

After hitting all-time highs last week in the immediate aftermath of the Fed Reserve's latest announcements, the major indices have trended consistently downward. As the chart of the Dow below shows, we are seeing a wide ranging pattern that has been in play since the mid-May highs were reached.

On my own particular timeframe, this has meant frequently being stopped out of promising trades which have reversed quickly. It has also been difficult to find any decent shorting opportunities.

Once again tonight I find myself totally out of any US positions, while still holding a number of UK and European stocks which have held up better. Despite this, total returns including open profits hit a new high this week.

Remember that there are four market states - trending or non-trending, stable or volatile. It can be argued that currently we are experiencing a non-trending, volatile state - the worst combination for a trend follower like me, operating with my timeframe and parameters. Of course, should your chosen timeframe be longer-term or short-term than my own, you may have a different viewpoint.

If you operate in a single timeframe and keep the same parameters, then the trick comes in knowing when to stay on the sidelines. Staying in cash is an option the individual speculator has, which may not be available to a fund manager. Trading is an odds game, and when the odds are stacked against you (such as when market conditions are not conducive to your trading approach), going to the sidelines is something you should consider.