First, I am long and intend to stay that way because that is part of my plan. This is not a swing trade, but instead a position trade which I have written about in previous reports. This means I manage the position without stops or targets, but it also means that I control risk through careful sizing. Since I am relatively small, I am not emotional to adverse moves, especially if price spikes which often looks dramatic and shakes people out. Positions like this require a belief in the big picture and no positions taken on margin. By being 1:1 with the market, I can average into the position further, in a fractional and strategic way.
As I wrote about in previous reports, things change. Previous signs can appear, like they have, but no follow through like everyone has become conditioned to expect after trading in "easy", euphoric vertical markets. Lack of follow through is typical of a range bound consolidating market. In order for the next rally to take this market out of this condition, a catalyst of some kind needs to materialize.
In situations like this, it is important not to lose sight of the bigger picture. In this scenario, it is possible for price to retest the low which I wrote about in my previous report and described it as the "failed low" formation. This is where price can go slightly lower, and then fake out. Often this is accompanied by a or candle. There is no guarantee that this WILL happen, it is a matter of waiting to see IF it happens.
What we have at the moment are great prices for bigger picture longs, but momentum has shifted back to . Keep in mind a retest of the low can go as low as the 8656 area which is the lower boundary of the broader .618 that has been holding price up for a number of days. Until momentum shifts back to , one way to participate in a market like this is to place limit orders deep outside the market to try and take advantage of any price spikes. This must be done small and carefully in order to mitigate risk in case of a deeper correction.
In summary, anticipating market moves means positioning yourself when things don't look obvious. As long as price can manage to gyrate within the current , I will look to add to my long when signs of momentum return. If price collapses, I simply do nothing except look to add on an extreme price spike. Reacting to the momentum by going short is a high risk game just like buying near the top when the market is making relentless highs, this works for short term strategies such as day trading which is not what I am employing in this market. By the time momentum appears and takes the market much higer, that will be an opportunity to start locking in some profits as all the reactionary traders enter the market. Back in December when the started trading, I wrote about anticipating "balance" which means tighter and more realistic ranges which is exactly what we are seeing. The levels are still attractive, and the bigger picture outlook is still intact, it is just a matter of a new short term driver or catalyst to reverse this market for a broader move higher. Positioning for such moves requires a lot of patience and ability to keep risk under control which I do by careful sizing.
Questions and comments welcome.
Special announcement: Today at 1PM EST I am going to appear on Nasdaq's Twitter feed in a live interview. Now, keep in mind, the first time I did this interview, they told me this information and changed it when I got there, and it did not come out until the next day. So IF they follow through with their schedule, I should be on today: http://www.twitter.com/nasdaq