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the fundamentals could be telling you that these high prices are not the reflection of solid demand from real users of the commodity; instead, speculators are buying the commodity only because the price went up in the past. Thus the market is being propelled higher out of a basic human vice, greed. Unless something happens to change the demand/supply equation, the constantly increasing prices are eventually doomed. What eventually happens is that the continuity of thought is broken, and the prices then plummet. What event fundamentally or technically do you think could cause this break in the continuity of thought? |
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So do you go short when you realize that the market is demonstrating a high degree of hysteria? You can go short only when your methodology tells you to get short. Now if your methodology incorporates a "hysteria" factor within it, and it is indicating that you should get short, then you would get short. However, I would urge you to realize that often this could lead to substantial losses, since it is very difficult to pick a point right before the crowd stops buying hysterically. It might be more advantageous to wait for the high and to go short after the hysteria, and its related continuity of thought, has broken. Another possibility is to wait for the market to hit a high and collapse, and then attempt to retest the high getting short at that point. Again there is no correct way; you have to create your own technique. |
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Perhaps a plan to trade using fundamentals and technicals would be to go long as soon as the technical gave a buy signal, and increase the position size as the fundamentals confirm the bullish continuity of thought. Then, as the fundamentals or the technicals (whichever come first) start indicating weakness, lighten the position size and, when one of them turns bearish, go flat. |
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The more you can understand about a market that you trade in, the more you improve the possibility of making a profit. Does this mean that you must become an expert? Depends on you, and how your methodology evolves. I suspect that the more you know about the commodity, the more you will enjoy trading it. The more you understand fundamentally about how certain events affect the commodity you are trading, the larger your "edge" becomes. |
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This extra knowledge takes on considerable importance at market turns. Many times when the market is beginning to turn, your methodologyif it is strictly based upon technical factorswill get you into trades that subsequently fail, resulting in a loss. Now if, while you were creating your methodology, you included a component consisting of fundamental factors, then as the market begins to change the subsequent technical signals will be counterbalanced by the fundamental components of the |
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