Wise Words

"Some of the best trades come when everyone gets very panicky. The crowd can often act very stupidly in the markets. You can picture price fluctuations around an equilibrium level as a rubber band being stretched – if it gets pulled too far, eventually it will snap back. As a short-term trader, I try to wait until the rubber band is stretched to its extreme point."

- Linda Bradford Raschke

Taz Trader Blog

Written on 01-02-2010 7:56 am by Craig

A Friendly Reminder: Don't Fight the Market

The stock market has taken a beating lately. Don't try to fight the market with trading on the long side. You'll lose. Perfectly good trading setups can and will fail. This is the beginning of the year so you don't want to spend the rest of the year trying to recover from dumb mistakes now!

The market is very oversold, so you may want to play a long side bounce this week if you can find very low risk setups and you are nimble enough to get out if the market continues to tank. Otherwise, just wait for a bounce to play the short side.

There is plenty of work to be done if you are not actually trading. You can be running scans to look for topping patterns (double tops, triple tops, head and shoulders tops, etc.) so that you will be ready to trade on the short side if the market does indeed bounce.

One last note:

It is possible that the market will fully recover from this recent drop (the weekly charts of the major indices still look fine). So, if you do not trade on the short side, you can just stay in cash and wait to see if that actually does happen.

Good Trading