When I developed Dynamic System, the idea was to exploit both large trends and ranging markets. It was therefore necessary to be offered sufficient precision to take advantage of these market environments. In ranging markets, the triggering levels tend to cluster over time, hence causing more frequent signals. They free up again once large trends are established such as during 2003-2009. Currently we are clearly in a ranging phase.

The scale basically goes from very long term to very short term. All of them have the same relevance for triggering an entry signal. You can also regard them as support & resistance areas. Let’s take the recent short signal (August 11th) for instance:

1. Price was nearing the mid-term triggering level 113.50 from below
2. Based on the bias color (bearish), clients know that it could signal a short
3. Price reverses nearby and our system gives an entry signal

These levels are not exact buying or selling recommendations. This is something that no system can tell in advance. Instead our system goes into detailed momentum analysis first by observing price action and the speed at which price moves. Once a reversal is observed there, it will enter a position and place the stop loss order accordingly.

Dynamic System generates a dozen or less signals per year to catch only the very big trends in which we stay in for weeks to months.

In the previous two years (since the inception of public trading signals) we lived up to our promise and clients enjoyed tremendous profits with few trades. 2008 offered merely five trades to make a 42% return, 2009 another 61% return with seven trades. In the current market environment we cannot stick with a trend as long as we used to.

You might have noticed that the market swings up only to reverse entirely. It is stuck in a range with the S&P 500 basically unchanged for the year. Not that our team wants to bloat with our 25% return for 2010 but when I conceived Dynamic System, I was aware that markets do not only trend. It is therefore optimized to exploit ranging markets with great efficiency, as well.

Our client base has been growing consistently with very low fluctuation. I am very thankful for the trust our clients give us. If you have any complaints, please do let me know. Although trend following still requires a bit of active money management, I’m sure it is absolutely worth the effort. So let us strive for a good second half 2010 and hope for more lasting trends to follow.

Market participants have been observing what is supposedly called a head-and-shoulders pattern in the S&P 500. Once its lows were violated, they anticipated further downside but this scenario failed to materialize as our benchmark made a u-turn at 1010 points. Dynamic System correctly signaled a long entry.

Since then we could recover quite a bit and rescue ourselves back into the safe zone of 1050 and above. Currently we can consider this a fake breakdown, to levels which the market is unlikely to return to again.

The rally on July 20 was a very encouraging day for bullish investors because on that day we marked a higher low in this new uptrend. Therefore, setting a stop loss order there is the maximum allowance we should give this market.

We are now looking to break the 200 moving average that has been quite a problem area recently, and would welcome a decisive breakthrough of the 1100 mark in the coming few days.

There is always a major trend that dictates the wiggles intraday. This has to be the focus to be a successful trend follower because only then the activity being observed day by day can make sense. Just because someone says it is “merely short-covering”, does it mean a trader should better not reap the profits of a rally? It could go down anytime, we are told.

The average investor is missing out yet another huge opportunity because he is being fooled into believing that the next crash is just around the corner. So after the dot-com bubble, where he refused to cut losses and after the financial crises, in which he was forced to give up his holdings, he is now in denial and – as always – doing precisely the opposite of what he should be doing.

Fortunately, at Trend Architect we have the vision to make trend following available to everyone. We put great effort in making this as easy and affordable as possible. With just $39 per quarter you can join the big trends of the financial market.

Before the trend bent recently, we exited the market on April 27 (subscriber content), on time to protect client money. Year-to-date Dynamic System is beating the benchmark with a +9.24% return, compared to a loss of -0.16% in the SPY (S&P 500).

Chances are high that the sell-off last Thursday was a trigger to put an end to climbing a wall of worry. Whether it was a computer glitch or not, it definitely was a reason to awaken the long-term buy and hold folks, and get them back to reality.

The bullish scenario we envisioned roughly two months ago is put on hold, as the index smashed through the 200 EMA like a hot knife through butter. We will therefore stay on the sidelines and observe the market closely for a new entry. Be there when Dynamic System gives a signal.

The market’s meltdown in 2008 has reignited a ferocious debate about the merits of buy-and-hold investing vs. timing the market. When using exchange traded funds (ETFs) as part of your strategy, you do have a third option.

The buy-and-hold side is saying that no one can beat the market over time so sticking to a long-term plan is the way to go. Proponents of the buy-and-hold strategy argue that predicting short market bursts is basically impossible, and they believe that long-term investing provides better numbers. Even considering the recent market downturn, people who invested a long time ago are still significantly up from when they first started investing.

It is merely common sense that individual companies, or whole economies for that matter, have their blooming and inevitable glooming phases. Ignoring this nature of finance is pure irresponsibility toward your money.

The “market timing” side simply points to the fact that those who held onto their investments are probably regretting it, remarks Silicon Valley Blogger for Wise Bread. This part may be true; many investors lost 40%, 50% or even more during the financial crisis. Some of those investors have had to delay or call off retirement entirely. Making up that lost ground could take years.

For the average retail investor, buy-and-hold investing along with regular portfolio rebalancing strategy has proved to be a successful combination. Institutional traders or people with large bank accounts do better with stock market timing since they are able to hire professionals, obtain top resources and use advanced strategies. Of course, an investor may have a long-term investment egg and dabble in the markets with some of loose pocket change.

Market timing and buying-and-holding are two extremes. You do have a third option: trend following.

What is being utilized in trend following is a simple concept that once a trend has been established, it is not easily bent. For example, if the market is rising overall, buyers must be possessing greater power than sellers. Resistance on the way up is therefore merely regarded as a roadblock on the way to even higher prices eventually. Having this in mind, allows the average investor to jump on a spectacular opportunity even at a later stage of the trend. You do not need insider information to invest successfully. Trends are easily spotted by simply looking at a chart.

Proper risk management is key in maintaining our hard-earned savings. The trend following approach suggests that the possible loss is always known before entering a trade because a trend follower sets a pre-defined stop loss area. This is usually the area where the reason for a particular trade is no longer given (say, a break of an uptrend).

As the economist Kenneth Arrow long ago pointed out, most of us prefer a gamble that has a 100 per cent chance of a small loss and a small chance of a large gain to a gamble that has a 100 per cent chance of a small gain but an uncertain chance of a huge loss. By knowing our maximum loss in advance, trading is no longer a risky gamble as it is commonly believed. Now we have to question, who really is the gambler? Someone holding onto falling share prices until its company is bankrupt, or someone who cuts the trade and moves on?

Now that we reached a new recovery high and are about to break through the 200 weekly EMA, chances are high that the market will go for 1250-1260, a gain of 8.7% from here. Consequently, this EMA is expected to turn around bullish.

If you have been a day trader and observed the S&P 500 closely back then, you will definitely remember how the index reacted strangely at the 1260 levels pre-Lehman Brothers. Not merely on one occasion, but each time we ranged in that area on several days.

During those days, I have been active in trading groups, and kept pointing it out to other particpants. I know other traders found this level weird, as well. We could not explain why, but “something was there”. So as we recover back to this area, I’m going to be very watchful.

Subscribers are already perfectly positioned to exploit such a move. A trading signal has been published on February 25 by Dynamic System. This trend following position is paying high dividends to all of us. Learn more about Dynamic System, if you like to follow our trading signals.

Since its close on November 25th, the US Dollar Index is up 3.09%.  This is a pretty big move in the currency market, and it has been an important move because it has broken the long-term downtrend that the Dollar has been in over the last six months.  As shown in the chart below, prior rallies over the last six months have been short lived.  Anytime the index bumped up against the top of its downtrend channel, it quickly reversed and headed lower.  This time around, however, the Dollar was able to break through the top of its downtrend channel, and this resistance will now act as support.

Jim Rogers, who remains a long-term bear in the U.S. Dollar, has taken the opposite side. He does a good interview with Tech Ticker explaining his surprising new trade. Among other things, he expects a major currency crisis in the next year or two, and he is still über-bullish on gold.

“It wouldn’t surprise me at all to see a nice rally in the dollar,” says Jim Rogers.  The legendary investor tells Tech Ticker he has started to accumulate more greenbacks as of late.  Rogers is still negative on the long-term fundamentals for the dollar, noting “the U.S. is the largest debtor nation in the history of the world.”

But “when everybody is on one side of the boat, invariably you should run over to the other side, for awhile,” he tells Aaron in the accompanying video.

After plotting the 20 SMA on the monthly S&P 500 chart, you will soon notice that there is nothing to be bullish about. I posted a similar chart earlier this month when it would seemingly smash through the moving average like a hot knife through butter, but this recent reversal allows us to classify it as a false breakout. Long term the index has always reacted well on this indicator, and it is doubtful that it will not do so this time. October’s candle is most likely going to form a doji for the first time since June. It is already a much sharper drop on top of that.

I’m a fund manager and have warned clients (and you) about a larger drop. Actions follow my words: In the recent weeks I have liquidated basically all equity positions, some of them proved to be huge winners. I can proudly claim to have invested in Apple and rode the entire trend up until we reached the all time highs. It surely felt like 2007 all over again. I guess I have to thank Mr. Bernanke. But enough is enough.

We are short this market and subscribers of my Dynamic System are already profiting from it. You can learn more about this trading system and join here. 676 is going to be the big target for us. Time and time again, I witnessed how the theory of gaps being filled eventually, is being proven right. Even if it takes a whole year. So I went back in history and looked for unfilled gaps since the March rally. Sure enough, there were plenty, the lowest one being March 10. The previous closing price of the index was 676.53. Unfilled.