The darkest hour is just before the dawn

While going through some old blog posts I came across this, which I originally wrote in March 2011. Reading it again, it is totally applicable to where we have recently been:

"Given the lack of direction in the markets this year, the following quotes from famed trend follower, John W Henry spring to mind, which are extracted from Michael Covel's excellent book, Trend Following:

"Unfortunately, markets do not step to a drummer that we control. Drawdowns affect everyone emotionally, psychologically and physically when they persist. It becomes very easy to envision a scenario in which things never get better. However, at JWH, experience tells us that things inevitably look bleakest before the tide turns."

"Volatility is just a harbinger of new trends to come."

"I knew I could not predict anything, and that is why we decided to follow trends, and that is why we've been so successful. We simply follow trends. No matter how ridiculous those trends appear to be at the beginning, and no matter how extended or how irrational they seem at the end, we follow trends."

My own trading has ground out a small gain for the calendar year to date, in a clearly unsuitable market state. This uncertainty explains my not being fully invested at the moment. Currently we are experiencing a volatile, non-trending period in which the general markets both here and in the US* cannot decide in which direction to proceed. At some point, a new trend signal will be given, being the green light to actively get back fully invested. In the meantime, it is simply a question waiting patiently for such a signal."

Those who have followed the blog for a while will know the reasons for my being either very lightly invested or totally in cash in the last two or three months:

• Indecision in the general markets;
• The majority of trades taken quickly failing;
• A lack of good quality long setups appearing on my scans.

 In other words, the markets were not favourable towards my style of trading.

The question is, has today given us such a signal, this time to the short side? Well, as mentioned on previous posts there has been weakness in the broader market* for a while. Today, all the major indices have been hit to a degree.  Time will tell if whether this is the beginning of a downtrend. I don't have a crystal ball.

For those who trade looking at a longer-term view than me, then today may only be a small element of noise. All I can do is follow price, and on my timeframe, and with the parameters I use, that is signalling to look towards the down side.

*Based on the broader Russell 2000