How savvy traders avoid falling for the market’s tricks

By Jani Ziedins | End of Day Analysis

May 01

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The S&P 500 spent Monday dancing around breakeven as traders get used to these new highs. As is often the case, the big gains came early and fast, meaning anyone waiting for last week’s confirmation is left with little more than crumbs.

Luckily, readers of this blog were ready for Thursday’s big pop. As I wrote last week:

The market loves to convince us we are wrong moments before proving us right. As paradoxical as it seems, [last] Tuesday’s bloodbath could actually turn out to be very bullish if the market bounces over the next few days. That’s because this reflexive selling is purging the last of the dead weight and clearing the way for the next leg higher.

Well, wouldn’t you know it, last Tuesday’s bloodbath was, in fact, a false flag that cleared the way for these higher prices.

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As for what comes next, even though the market seemed stalled on Monday, it still has upside remaining, and I expect it to break above 4,200 over the next few days or weeks. Unfortunately, riding this echo won’t be anywhere near as easy, quick, or profitable as catching last week’s 120-point rebound across two sessions.

But that’s the way this goes. The early bird gets the worm, and in this case, that means making the hard trade when it feels certain to fail. Buy when we don’t want to buy and sell when we don’t want to sell…

Now is the time to start protecting last week’s profits by lifting stops and even taking some partial profits proactively. We don’t need to harvest a lot, but it is amazing how refreshing it feels to lock in some profits and put our minds at ease. A little security is all we need to ride through the inevitable chop as we continue challenging 4,200 resistance over the next few days and weeks.

The price action looks good, and 4,200 is still very much on the table, but this is the wrong time to be getting greedy and cocky. Anyone doubling down up here is exposing themselves to a very routine step back on our way higher.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.