Leading and Lagging Indicators, Achieving a Balance (Part 5)

01/25/2008 12:00 am EST

Focus: STRATEGIES

Joe DiNapoli

President, Coast Investment Software Inc.

Another consideration is the type of brokerage operation that may be available to him. The influential connections that a larger trader is able to cultivate may not be feasible for the smaller trader. We all know a one lot in the S&P is treated differently from a ten or a fifty lot. It may be particularly attractive to a one or two lot trader to have price orders in the market at predetermined levels prior to the market getting there. He avoids the necessity for handpicked filling brokers doing his "bidding." In between the 50,000 and five million dollar account there's a lot of elbow room. Where you fit in can be dictated by many factors.

For hedging purposes this approach can be a godsend. You eliminate all need for context since you know already that you have to own a couple of million dollars of, say, Swiss francs or Deutschemarks. What you do at that point is simple. Look at where you are in relation to your leading indicators. Act or wait as the numbers dictate.

Typically, mixing leading and lagging indicators is not suited to strict non-judgmental trading systems. It is perfectly suited, however, to traders who allow for some level of judgment in their trading operations. System traders have to be there day in and day out taking their signals so that when the big move comes, it will bail out their losses. This is very difficult on a one-man shop. However, an approach that yields a high percentage of winning trades and that is judgmental in nature can be picked up and traded at will, at almost any time of the year. This allows for a lot of down time for other activities. After all, isn't that why most of us got into trading in the first place?

By Joe DiNapoli of FibNodes.com

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