& stick with a plan
The last six weeks in the stock market have been a rollercoaster ride of emotion — one that you can see playing out in the charts.
This is always particularly tricky for traders (especially technical analysts). For me, it helps if I look at a chart and recognize the emotion involved.
Check out the chart, how to trade the fade, and where YOU have an edge here…
As a momentum trader, one of my absolute favorite things to do is go with emotion. But there’s a caveat involved. It’s if, and only if, that emotion takes me in the direction of the trend. Riding a wave of momentum caused by big money and little players alike is my typical go-to.
But, like we’ve discussed in previous letters, since August 5th, the situation has changed. One must be cautious of extreme emotion, because over the course of the last 6 weeks, the way to trade has been to fade — instead of — go with, emotion.
This is an absolute critical difference, and I’m going to remain cautious until ‘going with’ emotion instead of against it is the way to get in the game.
At this point, we’ve broken up above resistance and the bullish case has improved. But, that doesn’t mean my guard’s down. Whenever you near all-time highs on the ‘high’ of emotion, it’s the exact time to exercise caution.
An overbought state, with potential new, all-time highs causes emotion — one that may fade in the coming days, particularly with the Fed decision looming next Wednesday.
So, what’s a trader to do?
Stick with your plan.
In my plan, I primarily focus on trend following and stock picking while adjusting for pinball markets. However, in all of these conditions, my edge is the absolute constant. While my strategies ebb and flow, entering setups with an edge, will never change.
Where do you have an edge?
Traders have an edge in high probability moments in time — either pullback buys during a trend follow, or up against support or resistance in pinball. In this gray space right here, edges are waning and we must remember that CASH IS A POSITION.
I have a few trades on… and I’m planning to add more next week. These will be trades that follow my conservative, small accounts based plan. I’m lying in wait for the moment. I plan on getting more active when I ‘have another card’ (a phrase Henry has coined) next week.
When I strike, I’ll let you know in my Stacked Profits Mastery program. So if you haven’t joined me yet, it’s definitely not to late…