Happy Halloween Rookies!

The markets have been the scariest thing about the month of October for most people.  Halloween has brought a small reprieve to anyone that has been sitting on the long side of things.  Are you one of those folks that are still sitting on the long side?  Or do you find yourself on the short side and are now getting squeezed as we speak?   There are plenty of participants on both sides of the trading fence.  There are as many reasons for being on either side as there are seeds in a pumpkin.  We will examine a few of those reasons to give us insight into how we need to evolve as traders and investors alike.

Long or short, that’s the question?  To determine where we should be when it comes to the market depends on a number of different factors.  First and most important is what is the market doing now?  Is it trending or is it consolidating?  If it is trending then is it going upward or downward?  Regardless of which way we see the market is going we definitely want to be on the same side as the trend, right?…well sometimes?  There are typically two sides to the trader coin, there is the trend-follower side and the contrarian side.  Some traders do both of these very well and then some traders don’t do one as well as the other.  It has been my experience that the vast majority are the latter.  Quite often traders, especially new ones don’t have the skills and attention to be a contrarian trader.  This can be for any number of reasons but the one reason that is most glaring is that when you have a trending market whether it be up or down that the pullbacks are often much smaller in scope than the trending swings.  This means to trade well we need to be on top of the markets and most newer traders seldom have the time to be that engaged in the market at least at the start.  There is of course always exceptions to the rule and if this is you then awesome!  Now that we have mused over the trending issues there is one other very important factor that goes into whether one should be short or long at any given time and that is…

Your trading timeframe!  Yes, the markets have dropped significantly in the last three or four weeks but does that mean that everyone should short?  Well, that depends on the timeframe that you are trading in.  For example, if you are an investor in AAPL you most likely would still be long AAPL because it is quite far above the 200-day moving average which for a lot of investors is the line in the sand between bullish and bearish.  Now, if you are a swing trader then the 20-day moving average might be your threshold for changing bias and since there was a death cross of the 20ma over the 50ma then you might be jumping on the other side of the trading fence.

These are just a couple of the things that we need to take into consideration when we are deciding which way we want to be in the markets at any given time.  The key to good trading is having a threshold or set of rules that you follow to tell you when to change stance.  As with everything else in trading following your rules is paramount in keeping your bankroll alive in the trading game.

As for the trading this week we need to discuss one thing further and that is what we believe is the next move for the markets in general.  Do we believe this is the start of another leg higher or is this just a rip-your-face-off rally that is doomed to fail as all the other rallies have in the last couple of weeks?  There is only one way that I know of on how to tell whether this market is heading up or down and it requires patience and attention and that is to see if the market breaks a significant level of resistance.  In this case, we are going to look at the ETF of the S&P 500 and see what we can do to discern where are trading should be pointed.

Check out the video below and have a Happy Halloween!!!

Happy Trading!