Today is Wednesday, May 5th and we saw a little follow through from yesterdays sell-off.
Today we saw some follow through to the downside from yesterday, it is certainly understandable. All the investors who did not get a chance to sell on on Tuesday, did so today. Did they make the right choice? Time will tell. I do see the market trying to shore itself up as the the S&P 500 futures came 10 points back up off its low today. It had a nice retest of the early lows late in the afternoon, followed by a pretty good rally. That too is pretty typical, as traders and investors like to buy double bottoms. It can be a risky move and I feel you need a little more market know how than to blindly buy because it is a double bottom. Some say it is a sucker play and under certain circumstances I would agree.
All to often, the market will bounce off a double bottom and you will see buying interest come in. That typically would be the sucker play, because just when you think you made the right move as the market starts to go your way, selling pressure comes back in very quickly, you suddenly get panicked as your profit is now gone and you are staring at Red. A few moments pass and you are hoping for a turn around, it does not come but goes down further and takes your stop out as well as most others who are right with you. When all the stops have been cleared out, large buying volume comes back in as the market has taken off without you, while it left you with some parting gifts, a stop loss.
I see that happen all the time on all kinds of time frames. What is a traders to do. It is best to learn how to read price moves and get very familiar with all of the tricks. Support and Resistance is really what it is all about. Without going into it to much, support shows itself in various ways as does resistance. Traders need to think like the traders who are trading there market. Don’t do what they do, but look for insight into what is happening and prepare to do the opposite. Often, patterns are developed to make you think that the market is going to go one way. Successful traders need to see the setups and or traps that are being laid out for them and do the opposite. Meaning don’t take the bait.
When you get familiar with these trade patterns and games, you too will be able to counter it by positioning yourself on the right side, the side everyone else does not see. If everyone saw it, there would not be a market to trade, so be thankful for that. We just need to know and feel comfortable with how the game is played. This takes time. To often, traders will blow out so fast and wonder, “what happened”, meaning to there account. They may reload and attempt again to recover as they feel sure, this time it will work. All the while very little time has past and they have virtually no additional knowledge or experience of how the market fleeces the unprepared. If you don’t want that to be you, you need a plan, method, time, experience, patience and of-course disciple. If you have limited funds, don’t rush in to live trading until you are ready. That is a difficult thing for most people, because to many times, traders always think they are ready far to soon before they actually are. If you are going it alone, who is going to tell you, “You are ready”. We think more highly of our abilities before its time, is the point. To counter that, preserve your equity and learn to trade by following the markets price. I would say, use no indicators at first and look for price patterns that you can exploit.
If traders did that first, then look for indicators that line up with your new understanding of how to harness the power of support and resistance, they would be on there way. You can always build on this model. If you only rely on indicators, you are leaning on the secondary, not the primary. Learn the primary first and the secondary will make much more sense to you.
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In today’s trading, I took only one trade. I could have stayed in longer but got out with my daily goal. The momentum was clearly down and as far as indicators are concerned, one of my was saying relax go with the flow and ride it out. That could have gotten me about 2.50 or 3.00 additional points, but I just took what I could easily get. I was in the trade for about 10-12 minutes I think and the bottom of the move lasted for another 20 minutes. I had a great couple of days last Friday and Monday and have just been on cruise control yesterday and today. I have a video of the trade below and most of it is a live trade if you care to watch. Again, if you don’t have time, sold short in the afternoon sell off as things started to turn down. I scaled out at several spots between 2-3 points or so and that was it. I did see the possibility for the market to just continue as I talk about in the video, but again, no struggle, no pain, no problem. We will see what tomorrow brings.
Lastly, I see the market trading up to 1166-1167 and catching some resistance there, if it can get above, 1168, there is a good chance there will be a lot more after that. On the other side, a break of 1158 could send us down yet again, I do see support trying to build in here and it is possible 1145 could be touched as I said a couple of days ago. I think we will again see trades on both sides of the market for tomorrows session.
Until then, good trading.
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