Despite the one-way traffic in the markets today, the last week or so have been a tough week to trade with the momentum continuously shifting between the bulls and the bears. For example, the market action on Friday was definitely bearish and I don't have to tell you readers what followed that. So, here are some tips for playing markets like these.
1. Trade what you see, not what you think: Forget your biases on the overall markets, and trade what the market is giving you. The market doesn't care about your opinion, and so shouldn't you.
2. Focus on the individual stocks rather than the indices: Unless there is a huge down or up move and important support or resistance levels are broken, just focus on how individual stocks are doing rather than the indices. The term "stockpicker's market" is actually relevant sometimes.
3. Prepare to get stopped out: If you are trading choppy markets such as these actively, be mentally prepared to get stopped out often. There was no disgrace in getting stopped out on a lot on days like Friday. I certainly did in all but two of my positions.
4. Don't go for home runs: Don't get greedy. When you don't have a definite trend in place, take profits when you can rather than going for the big winners.
5. Be prepared: The regular readers of this blog would have noticed that I have been putting up short setups too along with the usual long setups during the last week. Be prepared for a move in any direction.
6. Don't get complacent!: Everybody is an awesome trader on days like today. How Friday's action proved to be a nothing but a fake is obvious in hindsight. But that doesn't mean every dip must be bought. Most traders lose months of profit from an uptrend in the first week or so of a downtrend. Don't be one of those traders!
Take care and good luck!