Home > Psychology > Are You Planning for All Scenarios??

Are You Planning for All Scenarios??

As I sit here enjoying the holiday weekend I can’t help but to think of the market and the upcoming week.  One of the ways I plan for the upcoming week is reading other traders blogs and also various news and information sites.  Recently every site I have visited talks of the upcoming crash.  All I hear about is “Death Crosses”, “Head and Shoulders Necklines”, and the inevitable double dip recession.  Even perma-bull news station CNBC is talking about how the world is coming to an end. 

Well the funny thing about trading is usually the majority of people are wrong.  When the consensus of people are leaning one way the market has a tendency to do what is unexpected.  When you think ” this market can’t go any higher” you will find the market going higher.  When you come into the day thinking the market is “oversold” the market will close down 200 points on the day.  Trading has a way of humbling those who come into the day with an opinion and spend the day forcing that opinion on the market. 

As strange as this may sound the way to combat the unexpected is planning for it.  Most stocks are in a short-term downtrend, but do you have a plan if the market rallies.  Do you have a plan if we get above the 1040 level in the S&P 500 and continue to go up.  Many funds are liquidating positions but if the market rallies they will chase the move thinking they made a mistake.  If we bounce the move will be a slow grinding low volume upmove, are you as a trader ready for that?  What sector will you be looking at if this happens?  Are you looking at beaten down sectors to also bounce, or will you look at a sector that has held up well during the selloff?  Have you identified the weak and strong sectors?

The key as a trader is being ready for any scenario to unfold.  This way when the day is unfolding you understand what you are looking at.  It is impossible to trade if you don’t understand the structure of the day that is currently unfolding.  I expect this market to make another leg down but understand that it may not.  I would not be surprised if we bounce a bit and go higher before earnings season.  The greed that takes over during an uptrend can be a slow process.  Don’t be surprised if in a few weeks you start reading articles about “How the threat of a double dip is over.”  That will be your sign that the upmove is over.  Best of luck next week. 

Kyle

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