Trading Psychology

What is the Current Trading Psychology?

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In a word. Thoroughly confused.  I can still see the broad market trending higher maybe even for the rest of September.  The price action continues to show little interest in breaking down.

What is bothering me is that I started following Larry Pesavento’s forecasts recently and he keeps talking about a big market drop that is supposed to happen soon and happen suddenly and that will eventually break the March lows.  It has screwed up my own psychology of the markets because I have been generally bullish and am still seeing enough bullish setups in individual stocks.  The market still has not given signs it wants to start a major downward trend change yet.  So why try to pick a top?  It just seems fruitless at this point.

The monthly SPY price bar so far rejected the lows and now appears to want to expand topside.  To be sure, when the REAL correction comes it will come suddenly and a good portion of the damage will happen in a matter of hours.  But until that point comes I am still bullish on this market!

The entire rally we have had since the March lows has been on lighter and lighter volume.  This is a warning that eventually a nasty correction will start but the problem comes in trying to pick a top.  Low volume rallies can seemingly last forever sometimes.

There is a gap on the SPY ETF that would be filled if the SPY hits 107.41.  It is possible we are going to go up there and fill that gap in the days ahead and then turn around from there.  107.41 is not that far from where we are today on the SPY.

I am also seeing a possible triple bearish divergence developing on the SPY ETF.  It will probably take another week or two to develop but it is worth keeping an eye on.

In the meantime I am still focusing in on ABK because I think ABK at least has the chance of being a blockbuster trade, maybe even better than the gold and silver breakout.  I like gold and silver but the problem is those markets can take forever to move.  I want to try to find something that moves soon and moves big.

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Don’t Ever Feel Bad about Making 5 Percent on a Trade

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It took me a long time to learn this and to be honest I still have not 100% learned this principle.  What am I talking about ?

I am talking about that feeling you get when you enter a trade, it starts to go your way and you sell ‘early’ taking your 5 or 10 percent only to see the stock zoom higher onto much bigger gains.  So then you might start the ‘coulda shoulda woulda’ syndrome where you start to regret the fact that you jumped out too early or made a mistake in your judgment.

This has happened to me many times and each time it happens I almost have to pinch myself so that I remember that THERE IS ALWAYS ANOTHER TRADE OUT THERE.  There is no reason to feel bad about making 5 or 10 percent even if a stock goes on to make 200%.  Why? Because there will always be more opportunities for other entries and setups that are just as good or better.  Sometimes they do not show up that often, but eventually they will come and you will be there to pounce on them.

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UNG Natural Gas ETF starting to look more and more bullish

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ung20090805

On a risk to reward basis which is the better trade? The gold trade or the natural gas trade?  I think they are close to equal ground, but the more I think about the more I think that the UNG ETF Natural Gas trade is the one that has more merit in terms of maximum risk reward.

But let me be clear, the UNG ETF potential move is still a much different animal than the gold market.  I don’t think it can be said that natural gas is in a long term bull market.  It is an entirely different animal.  But nevertheless it has had a massive bear market crushing decline and now looks like it wants to get started on the ‘busted pattern’ setup that I had mentioned a couple times before.

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What do Animals Have to do with Trading ?

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cheetah7

I started a new category here called ‘Trading Psychology’ so that I can occasionally talk about aspects of trading that are more intangible. I can tell you with zero doubt that one of the most difficult aspects of trading that has challenged me time and time again is the tendency towards over trading when there really are not any good trades to be had.

That’s where patience comes in, and that is why I posted a picture of a cheetah in this post waiting in the tall grasses of (Africa?) to scope out its target and see if if can find something interesting to chase.  I don’t know how long cheetahs wait in the fields before they scope out a target and attack.  But I doubt they just run into the field paws flapping everywhere and then just chase and jump on the next moving zebra over the hill. 

They take their time, they scope out a target, they are extremely patient.  Heck most animals and pets I know of are very patient.  Certainly not all of them are, but I would say most of them are.  So it is not just cheetahs.

So most traders can probably learn a lot from the cheetah and most other animals and pets.  Try to avoid rushing to find a trade during the trading day, and then in panicky fashion buying something because it ‘looks good’.

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