How NOT to Trade This Market

• Posted by Robert Sinn
• on September 29th, 2011

I’ll let you in on a little secret: This market is here to fool you and take your money. Yeah I know, nothing ground breaking there. However, this market continues to fool the majority of participants who continue to play for breakouts and breakdowns. This is NOT a trending market, it is a market caught in a violently oscillating range. Those who insist on swing trading in search of 5-10% momentum moves have been, and will likely continue to be sorely disappointed. Case in point – yesterday’s action in $AMZN:

 

It takes a little more than a short term trend line break to take money out of this market. One must remember that the HFT algos are designed to trigger stops and cause trend line breaks in order to suck in human money. The HFT algos love mean reversion, this is their market until it isn’t.

 

This ain’t checkers, it’s chess and your opponents are mostly master strength players. To beat this market you need to think deeper and most importantly you must think on your own and not blindly follow someone else’s trades (especially those that will leave you stranded when the trade goes badly).

 

Notice how silver ($SI_F, $SLV) traded over the past 24 hours – powerful short term bursts of momentum followed by mean reversion. Buy low sell high, not the other way around.

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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