July 01, 2011 at 11:08 am | | Comments 7

Tricky Times

I’ll begin this post with a plain and simple statement that is always true, including now:  the market is tricky. It is never easy, and anyone who tells you it is easy is either lying or an ignoramus.

With that said, if you’ve struggled of late, you have company.  Traders of many timeframes have found these past several weeks to be quite challenging.  During the past 6 weeks, here are a few phases we’ve witnessed:

Swift move lower. June kicked off with total abandonment of stocks as the indexes shed several percentage points in the opening days of the month.  It was flat-out hard to get on board if you missed the initial turn.  It rewarded chasing.

Whippy trading range. Following the initial slide, the market settled into a trading range marked by volatile shifts of direction and frequent reversals.  It offered zero follow through.  Chasing rallies or selloffs resulted in immediate pain as prices turned on a dime to revert back to the other end of the range.  It rewarded fade trades.

Aggressive ascent. After a selloff and indecision, in recent days we’ve seen the market ramp relentlessly higher with upside gaps and rips inviting bulls off the sidelines while forcing bears to cover their shorts.  Again, chasing has been rewarded.

Chasing strength or weakness isn’t inherently wrong, and you can make fast money if you’re good at it.  Likewise, fade trading within ranges isn’t wrong either, so long as you know what you’re doing and you stick with your discipline.  But for the trend-following trader who prefers to see stocks run, base, then run again, this market has offered little for you.  It has been tougher sledding of late, regardless of whether you’re a bull or a bear, a momentum trader or a continuation player, a day trader or a swing trader.  It has been a mess, so if you’ve struggled, that’s part of the reason.

Here’s a look at SPY showing the three phases of the past 6 weeks:


Chart courtesy of TeleChart

Good News

There is good news.

First, from a technical standpoint we know that the further this rally carries, the more likely the March & June lows are to hold.  It just gives the market more breathing room for the next pullback (and we will see one).

Second, conditions are always changing.  Just as in recent weeks we’ve seen nonstop selling, complete indecision, and then aggressive buying, going forward we’ll see a variety of conditions as well.  That’s good, because it means at some point your ideal trading environment is going to arrive again.  But you’ve gotta be ready for it.  You can’t have your head down and be busy bemoaning the fact that you’ve missed a couple of moves.

Finally, this is a reminder to step up your game.  It’s an opportunity for growth – a wake-up call.  Missing out is only partly the market’s fault – the rest is in your hands.  Learn some new methods, learn to assess conditions better, and understand which strategies are best suited for the environment you’re facing.  Don’t be stagnant, or else you’re going to continue to find frustration anytime the market doesn’t cater to your current skills.  Build your skills and become a more complete trader.

Attitude Matters

At all times you can complain and look back and wish you had seen a move coming or had the courage to join the momentum crowd.  That’s always something you can choose to do, but honestly, it’s not going to help you.  That’s not a winning attitude.

But take heart if you’ve struggled lately.  Things will smooth out and when they do, you’ll have experienced a few more market moves to file away in the mental vault – ideally to serve you again later – and that means you’ll more readily identify opportunities you used to miss out on.

Stay on your toes, the market gives nothing away.

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

Follow TheStockBandit on Twitter or Facebook to keep up!

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  1. Awesome!!

    Feels like you were writting for me!

    Thanks you for all the information that you share!

  2. Good article Jeff.

    An analogy that is often used to explain what makes a few traders profitable is in the movie “The Guardian” about rescue swimmers:

    “The only difference between you and the drowning victim is that you have a plan”

    And we go in there with the really good plan you have taught us. Watch a stock ready to break through major resistance. When it does, jump in, ride it till it finally hits some more upper resistance that it cannot break through, then take the money and run before it slips back too far.

    Like a bandit, take the money and run before you get caught.
    The plan is perfect.

    It just has not been good weather for trading. Technical traders are still at the mercy of fundamentals when fear dries up the volume. Small volume equals erratic price behavior. Then the plan has to be to wait it out and preserve capital, or at most, do only light day trading.

    It is dumb to go out fishing in 100 degree weather at noon and expect anything other than heat exhaustion. It is even dumber to predict stock behavior when the market is moving like an over caffeinated mouse.

  3. Hey John!

    Excellent analogy with fishing at noon in 100-degree heat, some of the days lately in the market have been similar for those seeking multi-day setups. Risk-reward goes out the window somewhat if you start chasing one-way moves which have become short-term extended. For those of us who plan to survive the long haul, we have to consider when appropriate times to get involved are and when it’s most appropriate to do less. Thanks again for your comments, and have a fun & safe 4th!

  4. Still watching SIRI on the monthly chart match its way to 3.87. Momentum is up until 1.58 is busted to the downside. What a nice run.

    Trading has been slower, as you guys have already noted, esepcailly with the e-mini’s.

    Anyway, nice site.


  5. Ever since that run, we have had a nice pullback, but very choppy week.

  6. I agree Kenny, that’s a good way to put it. Good chance for a higher low to form after this, but the buyers will have to produce it. Thanks for stopping by!

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