Welcome back to the Week Ahead post. If you have never been here before, essentially all this post is something to help you on you for preparation for next week. Let’s jump right into it.
This past week we had a while ride as the volatility has increased alot of over the past few weeks. In a highly volatile environment AKA a choppy market, breakouts tend to fail and the mean reversion trades tend to dominate. This was very apparent this past week in the $SPY because as soon as we went ‘potently’ in one direction we just as quickly snapped back in the other. Personally, I do not like these environments because I am naturally a momentum trader and have never been that good or ‘into’ the mean reversion trades. Unfortunately, the market does not care about what I think and want and therefore, I need a plan on how to deal with it.
At it’s simplest form when the market is in a slow grind higher in a low volatility environment I will take all the breakout trades and let them run for what they are and have relatively loser stops on them – treat them more as swing trades versus tactical trades.
During the highly volatile environments given that breakout will tend to fail, I will trade them but look at them on a more granular approach. This means I am quick to take them off the table. I have found about the time it looks the best and it looks like it is going to ‘fly’ is the about the the right time you should take the breakout trade off or at least raise your stop alot.
Now the more difficult of matters is determining when the market environment has changed or is changing.
This is done by paying attention to a number of different things and then combining them to form a thesis and waiting for the thesis to be confirmed by the market. Often times a potent day (outside day) will lead to at least a warning and a couple days of misdirection and high volatility. When you see this, this at least puts you on watch for a change in market character. This technique can be used for both downtrending and uptrending markets, both have outside reversals that should be notices. Often times these lead to capitulation and a change in market character.
Now we are going to get into the two videos for this week here they are -
Sector Analysis -
Security Analysis -
Finally, here are the charts – I did not do as many this week as there really was no use to since they really all look the same and have no great set ups.