Talking Points
- Dow Jones Industrial Average (DJIA) volatility continues near 17 month lows suggesting sideways to lower trade in the near term
-The medium term outlook is for higher prices towards 19,700 so looking to buy dips above 17,800
-Below 17,800 would force us to reconsider the higher probability technical patterns
In our previous report , we commented how the low volatility levels generally lead to increased volatility levels. Increased volatility levels typically are not great for DJIA. Well,
Though prices have pressed into the upper bounds of the trading range yesterday and they continue to pressure a break out to new all-time highs, we need to be mindful that the market continues in to trade in low volatility fashion. Therefore, this market is range bound which shifts the odds towards a false break higher and potential drift lower. US30, a CFD which tracks the DJIA , can trade down towards 17,800 and the bullish outlook is still intact.
The medium term outlook remains for higher prices as we have been bullish DJIA since June 29 towards 19,700. Therefore, we’ll await lower levels to position towards the higher prices so as to generate a better risk to reward ratio.
Chart prepared by Jeremy Wagner
Positive risk to reward ratios was one of the characteristics we discovered when researching trading behaviors. We found that traders who implemented a positive risk to reward ratio were more likely to be profitable than their counterparts who implemented a negative risk to reward ratio. The good news is that as a trader, you have complete control over establishing your risk to reward ratio.
Once you determine your risk, look for profit potential of at least twice that distance of your risk. I will admit, the challenge you will face when trading this way is that you may end up with more losing trades than winning trades. However, I would encourage you to do the math and determine for yourself that you can still be wrong 60% of the time and still grow your account.
Learn more about risk to reward ratios in our Traits of Successful Traders research (pages 3-9).
Interested in a longer term outlook for equities? Download our quarterly forecast here .
Good luck!
---Written by Jeremy Wagner, Head Trading Instructor, EDU
Follow me on Twitter at @JWagnerFXTrader .
See Jeremy’s recent articles at his Bio Page .
To receive additional articles from Jeremy via email, join Jeremy’s distribution list.