Tackle Today: Behavioral patterns in trading – Webinar Tonight
June 3, 2020
≈ When price action starts to repeat itself ≈
Traders,
Have you ever seen something happen, thought it must be a random action, then all the sudden it happens again? Imagine if you are rolling 2 dice. They come up 7 on the first roll. Then you roll again….7. Again….7. At some point, you would check the dice to see if they are weighted.
In markets, we watch price. We watch the action of price, and the volatility of how fast price is moving as well. When price starts to behave in similar ways in response to similar events, traders start to ask questions as to why and if it will continue.
Pattern recognition is an important technical skillset to develop if you are a chartist. But visual patterns are not the only patterns that develop in the financial markets. Behavioral patterns also can give a trader who is locked in on price action an edge when developing strategies. Over the years, patterns of behavior can be identified in different conditions and traders with a smart edge and keen eye can spot them and take advantage of them.
Consider two recent price patterns that developed. During the last quarters earnings, there were very few price drops to the downside of any significance. In fact, for the S&P 500 companies who reported Q1 earnings, only a handful had a price drop of -10% or more out of all 500! That’s not typical earnings season behavior. During a typical earnings season, there will be winners and losers, big and small, and everywhere in between. A trader who recognized this pattern of behavior early on could have taken advantage of it and built trading tactics to do so.
Now, consider another phenomenon we have been observing. For growth and market darling stocks, the ones that have been extremely bullish the last two months, many of them have been running bullish the week before earnings aggressively. In most market conditions, stock prices tend to stagnate and become unpredictable just before an earnings report. So, why are so many companies moving higher just before these reports? Traders sit around and speculate and guess as to why, but that’s not really what’s important anyway. What’s important is recognizing when these patterns are occurring and then taking advantage of them when they do.
Building trading systems, strategies and tactics takes a lot of work. But, the first step in any traders journey to develop trading strategies is to recognize price and behavior patterns when they are happening.
Tonight, during our weekly special webinar on YouTube, Coach Mark will explore this topic and discuss it in the context of the current market.
Join us live at 7 pm EST here: https://www.youtube.com/c/TackleTradingTeam
Chart of the Day
CrowdStrike Holdings Daily Chart
CrowdStrike has been a top performer during the past 2 months. Recently the price moved from the mid $70’s to $100 per share right before it’s earnings report. We’re starting to see price patterns in relation to pre-earnings moves that are very interesting. Is the pattern repeatable? Time will only tell.
Video of the day
Trading Basics: Volatility Build or Volatility Crush
In this video, Coach T explores the phenomenon of Volatility Building and Volatility Crushing during earnings cycles.
Traders Lounge 11 AM EST
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Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
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