Good Day Bloggers!

This week I had a conversation with a student that resonated with me and I thought it might make a decent topic for this week’s blog.  The interesting thing about this topic is that I knew very little about this particular student.  I don’t know how long they were trading or how much experience this individual has if any.  This student said something that made me sit up and take notice and this doesn’t happen every day.  This tidbit from this student came after a discussion about where the markets are currently are and perhaps where they might be headed and what the best approach might be to tackle these volatile and unpredictable market conditions.  The quote from this student went a little something like this, “just buy a put in case it goes down.”  This sounds innocent enough, but to an experienced trader, this can be a slippery slope of thinking.  See the first thing that can be problematic with this line of thinking is it appears to be somewhat of a knee-jerk reaction to the events that have taken place in the last three weeks.  Now, buying a put to insure your portfolio can be a wise thing to do but it should only come after careful consideration and planning, it should not be a reaction to what the market did yesterday or last week.   It goes a little something like this if I flip a coin 10 times and the first nine flips come up heads what are the chances that the last flip comes up heads?  Its a fifty-fifty shot that heads come up again.  Now, I am not suggesting the market is exactly like flipping a coin but it does have some similarities.  The market gives us signals that make understanding what the next proverbial flip might be easier and we can get better than 50-50 odds if we spend some time reading the markets and making logical decisions about what can happen.  This is where the thinking of trying to predict where the market is going can be an exercise in futility.  Our job as traders is to react to what the markets do instead of predicting what it might do.  To follow these clues we need to put in the time to understand what the market is capable of and what the next most likely step would be.

The conversation with this individual followed through with me explaining what some of the steps are in reading the markets.  We have talked about these steps in the blog before but for those who may be new to this blog, I will review the steps briefly.  We need to figure out what the trend is that we are looking at for the timeframe we are trading and then we need to look for spots where the equity or stock that we are trading pauses or changes direction, we call this support and resistance zones.  Once we have these two things in mind then we need to look for a repeatable pattern that we can use to determine our next move and this includes what price we want to dive in at and what price we want to get out at.

It is this kind of thinking that can help us be successful in the markets and this can help us keep ourselves from getting jaded from certain market conditions and keeping from making snap decisions in the markets.  Ultimately this work that we do to understand the markets can put us in a position to profit from the markets and be successful in the longer term.

This week we have a bearish trade setup I like and in the video below I will go over the next trade are going to do and watch over the coming weeks.  Enjoy. Happy Trading.

Happy Trading!