
You can
just imagine how it works: certain traders have not been keeping up with the
fundamentals and they are consequently surprised when a currency pair (or an
equity, or an index, or a commodity) either takes off into the wild blue yonder
or succumbs to a collapse. They watch, awestruck, for a while and eventually
decide that, hey, the world must know something that they don’t, so they pile
in, regardless. After all, one does not want to be left behind.
So the
security in question goes through the roof, or the floor, as the case may be.
But only until such time as the followers (the large cohort that sees life only
through the rear-view mirror) are exhausted and the market reasserts itself, to
bring price back into equilibrium.
We believe
that something like this has just happened to the Aussie dollar. We have closed
out our position after it moved well into profit (see chart - the small blue dotted
line represents the initial profit take-off and the longer dotted line is the
profit on the other half of the position).
We did this
on the basis that exhaustion, as explained above, has taken place. We have been
carrying out research to enable our software to recognise such exhaustion and
the outcome of this trade is an example of the results.
Do not get
us wrong. We will not be taking a long position in the Aussie anytime soon. We are
merely expecting a retrace in an otherwise well established downtrend and have
set the Silver Trigger software to take the next short position that conforms
to its algorithm.
It will be
interesting to see what happens.
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