The mistake bulls and bears keep making, part 2

By Jani Ziedins | End of Day Analysis

Jan 17

Free After-Hours Analysis: 

The S&P 500 slipped another half percent on Monday as 4,800 resistance remains an impenetrable barrier.

Days of up followed by days of down sounds like a trading range to me. Luckily for readers, this is exactly what I forecast in last week’s Free Analysis:

Bulls and bears are jumping all over these gyrations that confirm their biases, only to have those trades blow up in their faces a few hours later. This market is entering a consolidation phase, and it will be a while before we get the next big, directional move. Keep that in mind the next time you are planning a trade.

In range-bound markets, we trade the reversals; we don’t bet on the continuations. Until the market decisively breaks out of the 4,700/4,800 trading range, be prepared for a lot more sideways chop.

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Trading ranges look seductively easy to trade in hindsight, but it is impossible to overstate the difficulty of standing your ground when it feels like the market is moving against you. This is one of those times where, if you wait long enough, both Bulls’ and Bears’ trades will show a profit. Unfortunately, it is never that easy. Instead, both sides lose their nerve and bailout for a loss before the profits show up. Buy high, sell low, repeat until broke.

Remember, successful trading isn’t about big winners. Everyone gets those. It is about keeping those profits in the follow-up trades, which is why I’m not anxious to press my luck here. Maybe we get a nice buyable bounce later this week, but with the market switching direction every day or two, it takes impeccable timing to get these trades exactly right, so be careful chasing these nickels and dimes. It would be a shame to allow haste and greed to cause us to give up our big pile of profits by irresponsibly overtrading this sideways chop.

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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.