Every week when we are present in the markets, we have a chance to learn something. This past week was particularly interesting and important. There were several moments when the markets and conditions were teaching us all something new (or even old).
I’ve summarized some of the things I saw and experienced last week, including intel gleaned from the chat room. Learn from it, grow and be a better trader down the road:
- Markets DO go down. We learned that not just this week, but certainly for most of 2014 already. While this is not a bear market and the Fed is still in accommodation mode, dips can be considered buying opportunities even if they are sharp and painful. Many of us may have felt sick to our stomachs, but that would have been exactly the WRONG time to throw in the towel. The longer term trend is still up based on the charts we follow.
- Using the charts to identify levels is extremely important. On Wednesday, while we were all wondering if/when the market was going to stop going lower, our own Suzie Smith took a calm and rational approach, identifying levels of interest to buy. She constantly said, “Let this just play out, don’t be in a rush because the buy point will be evident.” Suzie pointed toward a level on the SPX futures of 1737. She was spot on. Since that callout on Wednesday afternoon, the ES futures rallied nearly 55 handles, or about 3%. It was a sensational call seen by EVERYONE in our chat room. See for yourself in this Chat Room Conversation segment – 2/5/14.
- You have to be patient. We talk about it all the time in the chat room, during my webinars, and in blog posts. While our entry on timing may not be pristine, that doesn’t mean the trade is over right away. If we’re following time-tested patterns of charts and technicals, then that will be our guide – not the option price.
- You have to be part of the conversation. In our chat room, we encourage everyone to speak up. That’s what we did during the big down on Monday and even on Wednesday when things were looking dismal. There is always a silver lining behind a dark cloud, but if you’re alone, you probably won’t see it.
- Open your eyes to the possibilities. Market volatility came back in a big way this week. The VIX climbed to 20 and then right back down to around 15. This was a great setup to take advantage of a VIX spike high, which now has been a great buying chance six times in a row.
- Pay attention to oversold signals. On Monday the McClellan Oscillator, flashed a ridiculous oversold signal. On Wednesday all market indicators did. What do I consider ridiculous? Imagine a rubber band stretched back as far as it can go – and then release it. That’s what happened subsequently on Thursday and Friday, a powerful snap back that brought the markets positive for the week. As Doug Kass say, “Risk happens fast.” But recoveries and up moves also happen fast, and if you’re not looking for them you’ll miss them.
- Filter out the noise. We heard so much about how the market would do this or that from pundits, analysts, fund managers, experts and talking heads. Instead of listening, we turned off the noise and paid attention to the markets. While we had to wait out some short term pain, it turned into a bounty of opportunities and setups. Remember: We trade what we see, not what we think.
- Manage your doubts. We can all very easily get caught out of position – and if you’re long/bullish and a down day occurs (like it did on Monday), it can bring out self-doubt. I’m a trend trader, as are most in our chat room – there will be days like this.
- Experience is the greatest teacher. We can be book smart and understand certain conditions, but actually living through different market trends is the best teacher. If we see things objectively, then we’ll come to find more opportunities open up for us on a regular basis.
- Take action. We cannot win or grow without taking on some risk. Seeing the best chances/probabilities in front of us and actually TAKING them is not being reckless. Rather, we’re giving ourselves a chance. Remember, William Shedd once said, “A ship in harbor is safe, but that’s not what ships are for.”
