Please write this down as a major trading lesson to always be aware of:
Signals in conflict with each other + setups not breaking out = time to be cautious or in cash.
After last week’s damp squib, we now witness a market well and truly in conflict with itself.
This means it’s a lower odds market to play in, and therefore we ease off and stick to cash. At the very least we really tighten up any P1 targets for trades that we do decide to enter because this kind of market will result in bumpier rides punctuated by whipsaws and general discomfort. In other words, more volatility.
Now, this was already becoming apparent because hardly any of our preferred breakout setups have actually broken out … Remember, “No breakout means no losses” which means an inbuilt protection with my methods.
The beauty with playing a breakout (regardless of whether it’s a traditional consolidation breakout or a reversal breakout) is not only is it a protective mechanism, but it is also an indicative signal in itself. In other words, when stocks fail to break out en masse, that in itself is a sign that all is not well with the markets and it’s time to dial down our expectations and stakes.
In these scenarios, cash is not only a sensible place to be in, but with our way of interpreting the market, it’s the obvious place to be in. Signals in conflict with themselves and setups not breaking out mean a more challenging environment which we can easily recognize and take the appropriate steps to protect ourselves.
Today’s stocks have been identified via my existing watchlists, previous reviews we’ve gone through recently, and my post-earnings filter.