This newsletter has been focused on swing trading daily candles, both earnings related as well as long/short/sideways options and more recently long/short Forex.
It has now been a little over three weeks since my last post - there is actually rhyme & reason for this. The markets have been extremely choppy and essentially a losing proposition for longer term traders. The focus of this blog and the signals that I provide for premium subscribers are based on daily candles only.
SPY closed the month of January at $306.48 and has been trading in a 2.5% range from this price. Essentially stocks have gone nowhere for the past month. It has been the pure form of a choppy market, which have the following:
False signals… which lead traders to make poor trading decisions, myself included. An asset class may appear to be breaking out to the upside, only to reverse direction shortly thereafter. This leads to entering and exiting trades at the wrong times, resulting in losses.
Whipsaw… This is my own personal #1 enemy. In a choppy market, whipsawing is very common, making it difficult to accurately predict the direction of the market.
Volatility… I normally love volatility - both rush and crush. But the choppy market has made volatility, especially implied volatility, extremely difficult to predict. This is one area in which I normally profit. But it has been behaving the opposite from the norm.
Uncertainty… It has been difficult to determine which direction the market is likely to move in the future. If I only had a crystal ball.
In actuality, the last 10 months can be defined as “choppy”.
While I have been generally successful for the past year and my account has grown (which is the point of this all right?), a majority of my profits have come from a type of trading I have always both shied away from as well as recommended to NOT do (for novice and more experienced traders alike) - day trading.
There is a point where as a writer of a trading blog based on after hours publication of trading, that one must step up to the table and state - DON’T TRADE. Cash is king (or queen) and it is not going to kill us to NOT trade for a brief moment until the consolidation passes.
I rarely catch a full trending move. But if I can jump in after a move begins and catch part of the move, my account will grow. Likewise, if I don’t trade and miss the beginning part of a potential move that reverses to the point where I would lose money, my account does not see drawdown. (So not trading a choppy market keeps me whole.)
The primary message: Don’t make trading stressful by forcing directional trades before consolidation is ripe.
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