Hey Traders,
Friday was a nice little rally to end an otherwise rough week …
And during several of my live sessions, I got the question I always seem to get whenever we see an up day lately …
“Is this the bottom?”
My answer?
Absolutely not.
This a dead cat bounce …
Bear market rally …
A fake-out …
How do I know?
Well, no one ever knows for sure …
But I just don’t think bad bank earnings and bad inflation numbers suddenly inspired markets back to a bullish, “risk on” attitude.
What’s more, I have been seeing an uptick in hedging action as of late, especially in the VIX pits.
The hedging I am seeing tells me traders are expecting VIX to blow higher … which is NOT a good sign for the S&P 500 (Ticker: SPX), given their inverse correlation.
Another worrying sign?
Market breadth is simply not there.
A lot of the inflows into the market on Friday were in just three names: Apple (Ticker: AAPL), Costco Wholesale (Ticker: COST), and Walmart (WMT).
Three names supporting the S&P 500 does not a rally make …
So no, I do not think this is the bottom …
But … that doesn’t have to be bad news. In fact, it SHOULDN’T be bad news.
Because this market is very tradeable, as long as you know where to look.
For one, up days like today are great for putting on potential short positions.
Volatility has also remained muted …
So options are not priced quite as high as they might otherwise normally be.
But … before you make a single trade, there are a few things to keep in mind about trading in times like these …
Remember: Pigs Get Slaughtered
Right now is NOT the time to get greedy …
And I strongly suggest lowering your profit expectations per trade.
No, I’m not saying lower your overall profit expectations …
I’m saying stop chasing those home-run, outta-the-park, +100% winners every single time.
A volatile market means there’s TONS of trading opportunities out there, but it also means a good trade can turn bad on a dime.
And personally, I’d much rather have three 50% winners than one 100% winner and two losers, or even one 100% winner.
Tighten Up Your Stops
Right now, you want to be super controlled with your trading.
So I strongly suggest reevaluating where you are putting your stop-losses …
And perhaps tightening them up a bit so there is less margin for a trade to go south.
If you have gotten used to putting your stop loss at 20%, maybe consider moving it up to 15% or even 10%.
I get a lot of people who don’t like the sound of that advice … they figure if markets are moving wildly, then they should give their trades even MORE “wiggle room.”
That may have worked out occasionally during a bull market, but right now, there is no guarantee that prices will swing higher in time to save a bad trade.
Trust me – right now you need to be realistic, and keep emotions out of your trading.
Cut your losses. Grab whatever wins you can. It really is that simple.
Trade Above The Noise
This tip may be a little less conventional, and a little more personal to your own trading style.
But during times like these, I like to focus on the trading strategies that are “above the noise.”
What do I mean by that?
Well, for example, one of my favorite trading strategies is following Big Money.
Smart Money spends thousands – if not millions! – of dollars every year on research, trading tools, expert insight, and professional traders.
So when they make a trade worth hundreds of thousands of dollars, or millions of dollars, there’s a reason they’re making that trade.
And the beauty is … I don’t need to know why. I don’t need to pay thousands or millions of dollars for the same resources Smart Money is using.
Because I can just follow Smart Money’s trades, and get the same advantages for free!
And these Smart Money trades are often based on actual research and intel … not a “gut feeling” about the market.
If I see Smart Money betting $5 million dollars on a stock moving higher … I’d say there’s a pretty dang good chance that stock is GOING to move higher …
Which sets me up to make a trade.
Now, obviously this piece of advice is very personal to each trader.
For example, Andrew Giovinazzi trades “above the noise” in his SPYMaster program by setting his trades up in such a way that he is able to profit from multiple directions.
Market goes up? Great. Market goes down? No problem!
In the last month alone, three of his four SPYMaster trades have been winners – that’s a pretty good track record considering the market has looked like this:
Obviously, what your “above the noise” trades look like will be up to you …
But you’re more than welcome to join us if you’d like some help along the way …
Click here for more information about profiting with Big Money Flow …
Remember – whether you are following along, or trading on your own, always have your own trade plan, and make sure your target profits and stop-losses are reined in, and match how much risk you are willing to take.
Happy trading!
Your Only Option,
Mark Sebastian