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Hedging ‘Dull’ Action

Hey 5-Star Trader,

There are many popular expressions describing the market. You have heard me say “Sell in May and go away,” and “buy the rumor, sell the news,” but today I want to talk about the saying “never short a dull market.”

 

What exactly is a “dull” market?

When people call a market “dull” they are referring to low-volume trading. This means that there are not a lot of buyers or sellers in the market creating action. Volume is stagnant and there is little momentum to the upside or downside.

A dull market is not to be confused with a bear market. A bear market is when we see the market trending to the downside (not being stagnant).

 

Why is it dangerous to short in a dull market?

Trading in a dull market can be tricky because the lack of momentum makes it difficult to know which way the market is gearing up toward. Though a dull market has little action, it can change extremely quickly and you don’t want to be caught on the wrong side of the momentum.

 

What am I doing?

I’m listening to the saying and laying low. We are seeing squeezes in various sectors and while they normally fire in the direction of the trend, they could potentially be pullback squeezes as well. As a momentum trader, the lack of action is making it difficult to predict where the market is heading next so I’m keeping only a few positions on at this time.

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