We are coming out of the doldrums of the sell in may period soon and we will start to see historical periods that are very strong.
This week is one of them. Now that does not mean to throw caution to the winds. But it does mean you can begin to start opening up a bit and get more aggressive. This week should have a nice tailwind rather than the headwind we have been seeing lately.
One thing to keep in mind is that these are historical results. Patterns like this are not 100% reliable, to say the least. One always has to keep in mind a black swan event. And with the geopolitical environment, the risk is higher than usual for that. Keep an eye on the gulf where U.S, ships are being fired upon by Iranian proxies. In addition, Russia is sending warships into the region and should get their soon. I expect tensions to increase geometrically when that happens.
I will be trading a bit more aggressively this week but not full speed. Full speed comes around for periods between Nov through January when historical returns are off the charts.
I made two swing trades on Friday and both reversed with a loss. This is breakout trading. It’s like betting MLB you have to weather the downswings. Breakout trading is not the easiest way to grind out a profit. That is why I prefer mean reversion trading which has a much higher win rate and return. But that also has its caveats as sometimes you take a big loss resulting from no stops being used.
I do have a mean reversion trade now in the SP500 which is a 1/4th position of my mean reversion trade. Today if we get a down gap I most likely will buy the 2nd 1/4 position. It will depend on the internals 10 to 20 min into trading.
One thing to keep in mind in mean reversion trading the indexes is that you can increase your return by avoiding trend days against you. For instance, if $ADD is -1500 20 min into the trading day it is usually wise to take your trade closer to the close rather then early in the trading day. There are also time periods where reversals occur more often. So rather than waiting until the close you might consider making the trade around these time frames. You could use a 15 min chart for timing.
The market now is off about 1/5th of a % 45 min before the open. In addition, QQQ is off the same. DB, however, is up almost 1% in premarket which is a positive.
If you want to follow some of my trades along with my thoughts typically given after the open you can go to @rickjswings. 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
RickJ
RickJ’s Handicapping Picks
