It only took one day to reverse the nasty selling Monday ushered in. There were plenty of traders willing to jump on the bear bandwagon just after one session. Volume was considerably lower on the day, but given the QE world we live in a bounce with no volume is quite the status quo. Yesterday’s price action was nearly pushing many over the edge, but today’s reversal clearly says the upside isn’t done just yet. For our sake, the hedges we put on will not impact us significantly and by obeying our sell rules we weren’t heading in all short like we say many swing traders due yesterday. Sitting pays and Jesse Livermore was the first to teach us this most important lesson. One day doesn’t make a trend and yesterday was merely a head fake.
Yesterday did look pretty bad with plenty of leaders taking it on the chin with hefty reversals. We aren’t in a normal market environment where mechanics are skewed by the Federal Reserve providing the market with $75 billion a month. Dealers will have cash to deploy and the only game in the market at the moment is the stock market. However, if you simply follow the trend and try not to make swing trades based on one day you will beat the market. Many simply try to catch a top; sure you can hedge to protect your capital. However, if you simply sell out and go short a day like today can destroy your capital.
The music may have skipped, but this game of musical chairs we call the market has yet to hear the music stop. Stick with your winners and cut your losers. This is a recipe for success!
