If you sold shortly after the open on Wednesday when the stock market was -500 then you probably are not reading this post now.
I did not know my lesson on panic I posted before the open yesterday would be a lesson learned the same day. But, I can think of no better example of panic selling.
So, the thought process is, after a tough 2 weeks of the stock market and then we get off 500 with all negative news premarket. And you’ve had enough. Have to protect assets so I am selling, NOW.
And you unload everything, with the idea of sitting it out now, taking your losses and waiting until things settle down.
Then you take a walk to cool off happy you now have sold everything. You come back late morning and find the market rebounding only to close over +200 for the day!!! And to make matters worse this morning we are looking at a gap up of between .5% and 1% lead by the Nasdaq.
That is going to be around a 1,000 point swing bottom to top from yesterday morning to today’s open in the dow.
What do you do now? It’s a tough one psychologically. I have been there. And what you do know is learn a life’s lesson. Albeit an expensive one. Panic actions never work out. To trade or in any endeavor you have to have a plan and stick to it.
The plan needs to take the emotions out of it. Your plan should not allow for 2nd guessing. And if you are not able to come up with a plan then do not trade. It really is as simple as that.
There are plenty of reliable systems out now, along with plenty of models for asset allocation that you do not need to be one of the many that trade based on fear and greed.
It’s a tough lesson to learn. Most need it hammered into their heads a number of times before they learn it. And many never learn it. The ones that do however typically go on to be successful traders or successful in whatever they attempt. As they know it is only through careful planning, discipline, and balance that success can be accomplished.
These mean reversion trades as you have seen can be nerve-racking:) We are seeing mean reversion now in some of the largest volatility you will experience. We are on the outskirts of the probability curve but as you can see we are weathering it well.
I exited SSO at the close yesterday, not because I thought it was right, but because my predetermined exit signal triggered. So, I exited as my methods have served me well. We took a loss on SSO but not a big one. I am still in QLD as the exit did not trigger yet. But an up day today and most likely it will at the close.
With mean reversion what you absolutely do not do is say I have had enough and sell at the bottoms. If you’re going to do that then do not trade mean reversion trades. Stick to break out trading with stops if that suits you better.
Red this morning are metals, oil, and tlt. Everything else I look at is in the green. To me, this has a moderate bias.
There are still risks of course in the market but the Tariff scare was way overblown. First of all, most of what is talked about by way of tariffs by both the U.S. and China are not going to be implemented for a few months. They are negotiating positions that as I see it will get resolved before the 2 months are up.
Trump has it viewed correctly. With China, the U.S. has nothing to lose right now. China has everything to lose. The risk to Trump, however, is losing his voting base in the Midwest among the farmers. This is no small risk for him but Trump not being a politician is sticking to what he feels is the right thing to do rather than to do the wrong thing and keep his base happy.
In the end, when these tariffs do not come about, and his base sees them for what they were I anticipate they will realize their fears were ill-founded.
But one never knows with voters as fickle as they are. And a lot depends on who they rely on for their news. If its the mainstream media they never would have voted for Trump in the first place. So I imagine they will stick it out with Trump before its over.
And of course, there are other risks we have talked about from time to time. They have not gone away. Congress is coming back soon, next week.
I doubt they will get down to the work of the people but listening to our esteemed representatives on the talk shows on Sunday, they will most likely get back to undermining the White House.
Congress needs a complete makeover from top to bottom in both parties. Term limits, eliminating money from special interests both foreign and domestic, ban on lobbying after leaving Congress, all would be a good start to get Congress functioning again. In addition, perhaps changing the Senate term to 2 years like the house to make our Senators a bit more responsible.
As I see it the dysfunction of our political system right now is the biggest risk to the U.S. economy and secondarily to the markets. Its been the root cause of most of what we are seeing played out in the U.S. right now in one way or another.
Ok, done this morning:) I most likely will start another position in AMTX this morning if I can get it around 1.50. Other than that it’s managing the QLD trade.
Good luck trading today
If you want to follow some of my trades along with my thoughts typically given after the open you can go to @rickjswings. Typically I talk about the overall day expected with the markets and also give some levels on the ES and NQ for failed breakout scalping.
It’s my private twitter feed for the stock market and its free. Sports Handicapping is the subscription-based part of this site. But considering the cost of joining it’s almost free:)
Good Luck Today
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