In the last edition, we discussed strategies to use to prepare for market pullbacks. Market pullbacks are just part of our reality as traders. For me, like I noted, I tend to stick with a swing trading approach and hold through a minor reversion to the mean.
Typically, especially on a news related drop like we experienced this week, as long as the market is fundamentally strong, it usually resumes its trend within a few days. However, a normal reversion to the mean would be a pullback to the 8, 21, or 34 EMAs. At this point, we’re breaking the 50 SMA. It’s crossing my boundary of ‘normal’ reversion to the mean.
So for this issue I’m going to give you my overall market analysis, but then I’m also going to introduce you to a new strategy.
A strategy that’s pretty much fantastic for a situation like the one we’re currently in…
After two down days, yesterday the S&P showed a bit of strength, and for a second it looked like the pullback was over. Then, overnight there came more bad news related to the current trade war discussion with China, and the market gaped down again today.
At this point, it’s a pretty key decision level because the S&P has broken the 50 SMA on the daily chart, and the Nasdaq is breaking it as we speak. Before this occurred, I was ready to look for buys in the market, using Phoenix, to watch for names of strength trading higher on a 15 minute chart. However, with this break, it usually leads to more panic related selling.
So then what am I looking at?
At this time, I’m focused on the high put/call ratio. It’s telling me that the market’s slanted to the short side, and traders are heavily short. This means that it’s possible for a short squeeze, and higher trade, to come through. However, that can’t happen if the price continues to fall. It’s a really precarious spot, and I don’t want to add shorts at these levels, nor do I want to add longs. I need more stability for longs, and shorting here would be shorting in the hole — unless you’re day trading.
I lightened up almost all of my longs, and the few that I have left have taken plenty of heat at this point, so I’m just going to continue to hold and wait for the market to perk up and add some more longs. I think it’s coming soon, but I’m not seeing it just yet.
I’ll let you know when I do.
As a trend follower, it’s never that enjoyable when the market pulls back, but the important thing to focus on is knowing how to prep for it next time. One of these ways is by adding varying trading strategies to your plan, such as trading futures — or considering even longer time frame trades that aren’t as impacted by market volatility.
Cue that new strategy I was talking to you about at the beginning.
This is why I wanted to take a minute and discuss with you a different trading strategy. I know you’re familiar with Phoenix by now, but I also know that there are many of you out there that aren’t able to trade as actively as I do. I’m sure there are also a lot of you out there that don’t want to worry about market pullbacks at all.
One of the best ways to do this is by focusing on longer term swing trades — ones that don’t require watching the charts all day, and all week long.
For this reason, I wanted to introduce two of my trading colleagues at Simpler Trading, Allison Ostrander and Jack Roberts, who have an upcoming webinar tonight at 7pm Central about longer term trading strategies. Like all our webinars here at Simpler, it’s completely free.
As a trader, it’s important to learn varying strategies and setups, to create a well-rounded trading plan. For this reason, I wanted to ask them for some of their favorite tips and tricks, and pass them along to you.
Allison mentioned that her three favorite benefits of matching the data with the technicals on the Long Game Strategy are:
- Excellent Entries
- Learning When to Take Profits
- Conviction of Strength
Some of the information they’re going to discuss in their upcoming class will include their Long Game Checklist. So as a ‘Five Star’ community, I wanted to give you a sneak peek.
Here it is:
Once you’re done with the Data Checklist let’s move on to how to pair it with the Techincal Checklist.
- How is the data lining up? Does it look overall positive or negative?
- Next take a look at the Daily, Weekly, and Monthly chart and ask the following: Is the price near the Bollinger Bands? Is the momentum at the top of the axis? If the answer is yes or high to these, then you may want to hold back from an entry at this level and wait for a pullback. If the answer is no, or the momentum is low but building in favor of your direction, then this may be an excellent spot for the entry of your trade.
- Are there any Squeezes printing on these time frames (or multiple ones)? Squeezes can allow for a better entry with a stronger potential move.
- Has there been a recent ATR Trailing Stop switch from resistance to support (or vice versa) on a Weekly or Monthly Chart? This free indicator can be an early clue for entry or jumping into a trade.
If you want to learn more, make sure you join them tonight for their free webinar. Here’s that link again.
As a closing thought, our informational webinars are the best opportunity to learn more about the general topic and the class that dives deeper into that topic. You can also see if it’s something that’ll work for you. Allison and Jack’s following class will be about looking for higher confidence swing trades when combining data with the technicals on the chart.
It’s great for anyone who doesn’t want to sit in front of their computer all day trading or is looking to build their portfolio.