Exposing Ideas to the Envelope of Serendipity

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Wednesday, June 2, 2010

Gaps Up, Gaps Down, Wild Ride For Traders

Market action has continued to whip traders back and forth in often erratic moves that can create a treacherous trading environment for anyone not extremely disciplined in risk management. While the behavior has been clearly bearish, nearly all the indicators I track remain at extremely oversold readings making swing short positions vulnerable to a market bounce near-term. This week may prove to be key in determining whether that bounce materializes soon and gets some traction, or if instead the May lows fail to contain the correction. Numerous calls for a crash, Armageddon, and the end of trading as we know it are once again swirling through the financial blogosphere, as they always do during sharp market corrections, and certainly the dismal global news headlines of late only serve to feed the frenzy. Rather than fixating on doomsday prophecies that allow emotions to override cool and detached analysis and trading decisions, instead focus on controlling risk until the market stabilizes. Be on the lookout for new opportunities that often quietly emerge as markets come under duress. The most successful traders will always be the least emotional, the most detached, and the most adaptable. In other words, step back, evaluate the situation objectively, and stay cool.

Trade well.

-- Brinkley
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