Please note that after I recorded this, I realized I wanted to more fully link the concepts of (1) fading immediate trends and (2) using trader emotion to my advantage. Essentially what I meant was that when the primary market participants left driving the trend extreme are those trading on pure emotion (pain, fear, greed, missed opportunity) -- as was the case at the 1pm exhaustion point -- then I'm usually taking the other side as the market corrects, and that's where the bulk of my income is made.
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2 comments:
Hi Don,
Good comments about emotion tonight. I know you don't do the blog to offer entry/exit advice, but this "VIX over 50" market has me sitting on the sidelines a lot as my stop size has at least tripled in the last month. My guess is the more experienced traders are doing well while many of the rest are getting mopped up and gunshy. Can you say something about how you judge extreme moves that are shortable (I know volume spikes must be one part of it). Thanks.
Chuck -
I hate to say it's feel more than anything, but it is. The morning after trend day is a good example where I'll often fade the first move up, down, etc. as I mentioned in Thursday's post.
In terms of charts, the third push on any timeframe also often reflects trader "exhaustion", as is divergence between price and TICK, price and stochastics, and any huge bar where at the current pace the market would run to zero or infinity.
The exit is on the retracement toward trend support. Essentially it's still trading "with the trend", just in reverse order in terms of selling and buying.
Don
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