The mistake bulls and bears keep making

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The back and forth continues in the S&P 500 as Tuesday’s big gains turn into Wednesday’s big losses.

But this doesn’t surprise readers of this blog. As I wrote Tuesday evening:

[T]he most important thing to realize is this market doesn’t have big move potential. We get these tradable daily swings…but every step forward is followed by a step back. That means we want to take profits early and often. Hold a few hours too long and the market will steal those profits back. I really like Tuesday’s gains and I’m sitting on a pile of profits, but this is the wrong time to be getting greedy. I already lifted my stops and am planning my exit.

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Well, here we are 24 hours later and the market stole back almost all of Tuesday’s profits. If your trading plan doesn’t include taking profits, you won’t have any profits left to take.

This is the kind of market where both bulls and bears are right, at least momentarily. Yesterday bulls were beating their chest. Today it’s the bears’ turn. The problem is neither of these groups are making money. Instead of bragging about their positions, they should be taking profits. That’s why savvy traders avoid biases and labels like bullish or bearish. We trade the market and it doesn’t matter which way it is going.

As for what comes next, expect more of the same. Headlines are not changing much. That means both bulls and bears can rationalize sticking with their positions. It takes people changing their minds to move markets and until we get some dramatic and unexpected headline that comes out of nowhere, expect this mindless sideways chop to continue.

Long gone are the days of big, multi-day moves. Instead, we are stuck with this daily chop. But that’s not a problem because it can be just as profitable if we know how to trade it. Keep taking profits early and often because today’s winning trade will turn into tomorrow’s loser.

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