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What kind of market are we in?

What Type of Market Are We In?

Feb 4th, 2010 | By sspencer | Category: General Comments, Steven Spencer (Steve's) Blogs, Trading Theory

We are in a downtrending market! What? We are in a downtrending market!! What? downtrend!!!!!! What does this mean for short term traders?

  1. Short stocks if they pop to previous support levels
  2. If the market trends up for two days then pray for a third day gap up so you can short the market!!
  3. Trade with less size as downtrending markets tend to be more volatile
  4. Be mentally prepared for the market to meltdown at any time. See traderfeed.blogspot.com on an excellent post on what to look for. http://bit.ly/945ZkT
  5. If the market gaps down and there is a feeble attempt at a bounce on the Open then put your short caps on.
  6. Remember that stocks go down more quickly than they go up. Take a deep breath when your shorts start working and give them some room to trade lower
  7. If a stock makes a hard down move on volume wait for it to pop a little before initiating a short position
  8. Don’t fade down moves. Fade up moves!!
  9. Remember that in a weak market we don’t need to have a down day every single day. If we have two hard down days in a row be careful with your shorts on the third day. This isn’t September 2008. The market isn’t gonna drop 20% in a week
  10. It is OK to trade on the long side in a downtrending market. We certainly trade on the short side when the market is trending up. You just need to understand that the bigger chops are gonna be on the short side. i.e. AMZN 124.50 to 114, AAPL 202 to 190, GS 171 to 158. These moves all happened intraday. Correct. They weren’t swing trades. I guess you could call them intraday swing trades :)

Good luck with your trading tomorrow!

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