The Daily Market Forecast... F.E.A.R.
Friday’s Blog Results: The suggested short caught the top of the day session and ran for 41.75 points to the next volume level. Team members knew about the 4174 level and saw that bounce 15.75 points.
Today’s Lesson: F.E.A.R.
Trading breeds emotions. It’s all about the money and most of us have emotional reactions to money. While greed is a killer, fear of loss is also serious problem for unskilled traders.
There is an acronym for “fear” that is important here. F.E.A.R. stands for False Evidence Appearing Real.
The chart above shows a good example of this. Looking at price soaring straight up you might be fearful of taking the suggested short at 4515.75. Your fear would have kept you out of a 41.75-point runner. Not good.
You might be thinking “What’s so false about this rally? It looks very real!”
The fact is strong moves in one direction will usually correct in the opposite direction rather violently. Scan hundreds of charts and see for yourself. The reality behind this phenomenon is that price extended too far and contrarian traders like fading these moves or taking profit.
Of course, you need some solid evidence that NOW is the time to fade it! Shorting halfway through that move would have been a loser. The evidence that supported this reversal was a significant number of large-lot traders had sold it before.
The opposite chart picture is also generally true. If price is melting up in an orderly fashion, the reversal is more likely to fail.
Think about it. You’re fearful of shorting a parabolic move and comfortable shorting a slow move. That’s one more way the market fools you into losing.
Today’s Best S&P Futures Turning Points:
Short Level: Short 4497.50 stop 4503.25.
Long Level: Buy 4285.50 stop 4279.75.
Trade well,
Mike Siewruk
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