Disclaimer: The below examples are for illustrative purpose only, this is not trading advice, follow your own trading plan and trade your own system. Trade at your own risk.
For those that really want to go long here on $QQQ and attempt to buy the dip in what is still an uptrend on the long term time frame the high probability bounce zone is lining up to be between $82-$83. This lines up with the 200 day moving average and the 30 RSI which are both potential areas for dip buyers to be waiting. While this is not trying to call a bottom it is an area where the odds are that we have a nice initial bounce here that could last multiple days. Great risk/reward and convergence of oversold RSI and the 200 day last line in the sand for bulls which usually bounces initially anyway. It would be better odds to trade the bounce with a smaller than usual position size and wait for it to bounce first back over the 30 RSI or the 200 day before buying into a falling knife. Also be aware that equities as an asset class could end up in a deeper correction and go lower from here directly or after a multi-day reversal. This is also referring to the 14day RSI on the daily chart only and this does give an edge with indexes but the RSI is not as useful with most individual stocks. I will be trading with a much smaller size than usual if I take these entries and also taking a stop loss if I am wrong.
The 30 RSI and 200 day are also close by under the $IWM chart and we could see a volatile bounce here as well.
Below is the historical chart of the $QQQ during the post dot-com bubble. Even with what ended up being a 50% decline in the ETF the 30 RSI held up by end of day all but a very few times as bounces ensued before the next sell off to even lower prices. Rallies and short covering can lead to sharp and fast recoveries even in bear markets which makes shorting trends in equities a little more difficult that playing the long side up in bull markets that are more smooth with less corrections.
Even in the 2008 market meltdown on the below chart the 30 RSI provided some great buying opportunities for big bounces.
BTFD…That's so 2013!!!
— Mr. Breakout (@sharptraders) April 11, 2014
All of my "Gurus" are Moving Averages. cc: @SJosephBurns
— LM_Tentarelli (@systemstrader95) April 11, 2014
@mnycx Max Pain is a myth, I've studied for years and is complete BS , even more so in weekly options
— Joe Kunkle (@OptionsHawk) April 11, 2014
— Al Sabogal (@alsabogal) April 11, 2014
Many asking about "hedging" long positions, the best way to hedge is to reduce exposure.Long + short is still exposure.Cash is not exposure
— LM_Tentarelli (@systemstrader95) April 11, 2014
49. Why is deciding where you will get out before you get in so important? Because before you get in is last time you have objectivity #LBMW
— jack schwager (@jackschwager) April 7, 2014
Buying downtrends = to buying a ticket on a wrong way train because it was on sale…
— LM_Tentarelli (@systemstrader95) April 7, 2014
North Korea Denounces S. Korea’s Ballistic Missile Test… And puts catapults and cannons in full military preparedness
— zerohedge (@zerohedge) April 6, 2014
@SJosephBurns every trade I ask myself, what's the risk and what's the reward?
— robertgg (@robertgg) April 5, 2014
— Trading Cards (@TraderHMS) April 7, 2014
One of the best things a trader can have is a filter that allows them to see what matters and what does not. Knowing where to focus our effort and time at to be a profitable trader is crucial. Some things will make us money and some things will cost us a lot of money and divert our attention from what does matter. Here are the 10 things I focus my time, energy, and attention to primarily:
I focus on what the current price action in the markets may be telling me based on support, resistance, gaps, moving averages, and a few technical indicators.
I study how price action played out on historical charts of the stock market in relation to my above indicators.
I spend a lot of time back testing trading systems that I have a theory about to see how they would have worked.
I develop entry signals off my studies so I have a good risk/reward ratio and a good probability of a profitable trade.
I focus on what my stop loss level will be before I get into a trade so I know how big to trade without losing too much trading capital.
I develop ways to exit my trades to lock in maximum profits and limit potential losses if wrong.
I find and read the best trading books I can buy based on others recommendations and Amazon reviews. I want books written by real traders not just writers or people with theories.
I hang out with some really good traders in a few facebook trading groups that have more experience than I do and I learn a lot from them.
I focus on following my trading system with discipline and not letting my emotions or ego interfere with making the right decisions.
I use the internet and social media to learn by finding the best information based on facts not opinions.
Psychology of Trading
Volatility expanded as $SPY went from all time highs to the 21 day ema in one day wiping out four days of gains in one session.
Holders of $SPY took the opportunity to sell into the rally Friday after non-farms payroll.
$190 $SPY was the dump zone, that is where bulls locked in profits. The $SPX 1900 was a target by some great Elliott Wave technicians and it proved to be the target everyone was waiting on.
Buyers did step in at the 21 day ema to support the plunge.
Most expected a rally into the close with shorts covering not wanting to hold going into the weekend but this did not happen.
Momentum stocks like $GOOG $TSLA $FB $LNKD and $PCLN were dumped for huge percentage losses. This is how a late stage bull market acts.
Utilities, energy, and gold some of the only green on the chart Friday which is sign of sector rotation of capital.
If the 21 day ema is lost the 50 day is the next level of best support and a potential bounce zone.
Look for the 5 day ema as potential resistance level for rallies.
Look at prices to hold up and bounce at the 30 RSI if we tumble down that far.
That brick wall at S&P 1880 looks different in the rear-view mirror. pic.twitter.com/aKclYUbMjN
— Christopher Ebert (@OptionScientist) April 2, 2014
The HFT lobby's rebuttal to this Sunday's 60 Minutes on how HFT rigged markets will take place shortly after. It will last 1 millisecond
— zerohedge (@zerohedge) March 29, 2014
— Mr. Breakout (@sharptraders) March 29, 2014
— Tim Norton (@TimNorton11) April 4, 2014
@SJosephBurns The switch is broken…
— Greg (@halls344) April 4, 2014
Don't you guys see what's going on. We talked trash about HFTs all week, now they are destroying the markets. Let this be a lesson to us all
— Jason Freeman (@ChartLearning) April 4, 2014
The best way to not be hurt by high frequency traders is to be a low frequency trader.
— Steve Burns (@SJosephBurns) April 3, 2014
I have no opinions about markets or positions – I just follow lines on a screen – Makes things simple
— LM_Tentarelli (@systemstrader95) April 3, 2014
"Most people approach trading to make a lot of money, and that is one of the primary reasons they lose." – Dr. Van Tharp
— Andrew Selby (@DontTalkStocks) April 2, 2014
Nothing worse then sub services retweeting their members amaze ball trade tweets $Tacky
— Mella (@Mella_TA) April 2, 2014
— Pearlstein (@zoloftrader) April 2, 2014
"If I can't get over the emotions of taking a loss in 24 hours, then I'm trading too large or doing something else wrong." – Gil Blake
— Andrew Selby (@DontTalkStocks) April 1, 2014
If I ever hear you blame someone for your misfortunes or play the victim, you can't be a part of my circle as I associate only w/ winners.
— Sean T. Carter (@SeanTCarter) April 1, 2014
@zentrader divorce in 3…2…1
— Jason Freeman (@ChartLearning) March 28, 2014
Thanks to Doug Gregory @sharptraders for getting many of these follows together on a list for his twitter account. I have been wanting to do this blog for a long time and he made it easy.
Here are the top accounts CAN SLIM style investors/traders and Investor Business Daily readers can follow on twitter to create a great tweet stream that will give them high value information about their method and the stocks to watch and principles to follow for investing in the right ones at the right time.
@sharptraders Trade What’s Happening…Not What You Think Is Gonna Happen Sacramento · SharpTraders.com
@IBDinvestors Investor’s Business Daily provides leading stock market news and analysis, powerful investing products and education to help investors make money in the market. Los Angeles, CA · investors.com
@MarketSmith Official Twitter account for MarketSmith, Incorporated. All content is for educational purposes only & should never be considered investment advice. Los Angeles, CA · marketsmith.com
@WScottONeil President of MarketSmith & portfolio manager at the O’Neil companies. This account reflects personal opinion & should never be considered investment advice.
@TopStocksToday Official Twitter account for Top Stocks by MarketSmith. Content is intended for educational purposes only & should never be considered investment advice. topstocks.marketsmith.com
IBD Radio Show
@IBDRadioShow Join Amy Smith & Matthew Galgani Saturdays 4:00pm – 4:30pm (PT) for How to Make Money in Stocks with Investor’s Business Daily. AM 870 & http://AM870TheAnswer.com . Los Angeles · investors.com/radioshow
@IBD_ECarson Ed Carson is News Editor at Investor’s Business Daily, overseeing IBD’s business, economics and political coverage. @IBDInvestors Investors.com
@IBD_KShreve Reports on growth stocks for Investor’s Business Daily. @IBDInvestors Investors.com
@anishsikri Stocks, IBD, Leadership & My book is listed in Bill Gates Top 10 Summer Reading List http://ow.ly/d44Fa & Dominate the MarketWashington, DC · meetup.com/thedistrict
@gilmoreport Gil Morales is the co-author of Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market and is a former Chief Market Strategist for Bill O’Neil California · gilmoreport.com
@DarvasTrader follows you http://DarvasTrader.com is the home of the Nicolas Darvas stock trading system. http://DarvasTrader.com is written and published by Darrin Donnelly. Kansas City · darvastrader.com
@MichaelGLamothe follows you Founder of http://ChartYourTrade.com , Co-Organizer of the NYC IBD Meetup Group. I follow the CAN SLIM Methodology. Massapequa Park, NY · ChartYourTrade.com
@AndrewRocco1 follows youCANSLIM investor at Lincoln Capital. By day, I am an avid spoon collector, ventriloquist, and florist. #Darvas #Livermore #O‘neil
@IBDMeetup Director of IBD’s investor outreach programs which include; The IBD Meetup Education Program, IBD’s retail trade show programs & IBD’s social media programs