The Bigger Picture Holds Profits!

| January 6, 2010 | 0 Comments

Sometimes in life it pays to take a step back and look at the big picture.

Getting caught up in the day to day ups and downs of life can be stressful.  For me, it’s worthwhile to take a step back and look at the bigger picture.

This simple practice brings me clarity and focus.  It reminds me of what I’m working for and what my goals are.  It also reminds me not to take life too seriously.  Life is supposed to be fun, right?  I truly believe so…

It works the same with the markets…

For many, short term trading can get overwhelming.  Continually focusing on the short term, day to day movements of the markets may be confusing.  You may feel like you have to watch every tick of the markets to get a grip on what’s happening.  Watching the market minute by minute every day can be exhausting.

When you feel like this, it’s best to take a step back.  Look at the bigger picture of the markets.  Doing so can bring clarity and focus to your trading.

West Texas Intermediate Crude (WTIC) is the benchmark for the crude oil market.  Notice how oil was trading in a tight range bound market from mid-October through early December.  There was resistance at the $80 level (red line).  Support was around the $77 to $76 zone (green line).

In early December, the oil market took a dive below support levels.  What do you do?

The short term technical and fundamental situations can make this a challenging dilemma.  Should you be selling?  Should you be buying?  It’s confusing for inexperienced traders.

Whenever you find yourself in a situation like this… take a step back.  What I mean is, take a look at the bigger picture.

Here you can see the longer term trend in the oil market is up.  By looking at the bigger picture, you can see with clarity… You wanted to be buying the long term trendline (green circle).

You see, the longer term trend is more important…

The longer term (6-12 months) trend is more likely to hold.  Shorter term trends of 1-3 months are still important, but they’re more easily broken.  Finding the longer term trend can help you make better trading decisions.

You can see how trading with the long term trend got you great results.  Oil went from $70 up to nearly $82, a return of 17% in just a few weeks.  You don’t need a futures account to be a part of this trade.  You could have taken advantage of this setup by buying the U.S. Oil Fund (USO).  It’s an ETF tracking the price of oil.  (There’s actually a few ETFs tracking oil, make sure you know the differences between them.)

No matter what the market or the situation…

Find the long term trend of the market and trade with it.  If the long term trend is up, look for low risk ways to buy.  If the long term trend is down, look for low risk ways to short the market.  If the long term trend is sideways, look for a channel to trade.  That is, buy support and sell resistance.

So whenever you find yourself getting confused by short term fluctuations, gain clarity by taking a step back.  Find the longer term trend and trade with it.

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Category: Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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