chemical graphics
One of the things that has surprised me over the years (in a good way!) is that macro shocks align with technicals, more often than not, when technical patterns are strong. For example: it is extremely unusual to see a very bullish pattern in the a market torpedoed by bad news. “Bad things” happen in stock indexes after a decline is already underway. Sharp snapback recoveries from crater falls are rare (excluding the usual average recurrent bounces).
However, one of the other key rules to remember is that nothing is close to 100% in the markets – everything exists in a band of probability and sometimes patterns resolve unexpectedly. In the case of the bank stocks, many of which were down more than 5x their average daily move on Friday (to say nothing of SILV, whose drop is 29x an average day!) ), most of those drops weren’t very big . well telegraphed by technical patterns. This happens sometimes. Your goal, as a working trader, is not to catch or anticipate every move; your goal is to make profitable trades over a large sample size.
And the way we do that is by adapting to new information as the market gives it to us.
Changing biases
In this email last week, we laid out a fairly bullish scenario for equity indices. The second day of the week showed us that the bulls were losing control of the market and we were forced to update our bias and focus on shorts. As of Friday’s close, our MarketLife published recommendations included no long stocks “in progress” and five shorts. This was not how we expected the week to go!
Of course, this kind of flexibility flies in the face of conviction. Television and social media are full of commentators who speak with complete confidence. When they are right, they will remind you for weeks; when they are wrong, yes the public has a short memory… but your trading account does not!
If you are struggling as a trader, one of the keys may be to develop flexibility. Find the sweet spot where you adapt to incoming information, act on your signals without hesitation, and easily step aside when you’re wrong.
The Week Ahead (Potential Market Moving Data Points)
- Monday: None
- Tuesday: 8:30 CPI
- Wednesday: 8:30 PPI, Retail
- Thursday: 830 housing starts, available number, import and export prices
- Friday: 9:15 a.m. Industrial production
Original post
Editor’s note: The summary points for this article were chosen by the Seeking Alpha editors.