Of course, no one knows how the week will unfold in the US Stock Market (represented by the S&P futures, ES). Nevertheless, we can make some assumptions and lay out a game plan for trading the week.
Although buying came in on Friday, there was enough selling on Thursday to turn the immediate market bearish. Thus, we are likely to see early in the week that Friday’s S&P rally dies, and the market begins to move lower. Should this assumption happen, and the market fall, I would also expect the market to hold at, just above or slightly below the 1490.00 level. Holding here would set the stage to rally up. I would expect, however, due to the weakness seen this past week that the market not be able to push up and through last week’s high.
This is just one possible scenario. It’s value lies in the map it provides. It really doesn’t matter if the market follows the map. If it does, great. We have a leg up. If it doesn’t, well, that’s great too because it immediately tells us that the market is doing something different. That is just as valuable. We have the other leg up, if you can see it. (Think about this. It’s true, but certainly not intuitive. Then, again, neither is trading the market.)
Here’s an example: Let’s say this analysis turns out to be wrong. Instead of dying, Friday’s rally continues. The 1511-15 level holds. By our game plan, we would be expecting this level to break. It holds, instead. Well, if it holds, we want to play long. Can you see how having a well-thought out plan puts you on the right side of the market no matter what happens? Of course, you need to be mentally flexible and not locked-in to a bias. That’s where psychology comes in.
Much of reading the chart and trading the market has to do with the mental side of trading–i.e., your psychology. Conventional wisdom says you must first control your emotions before you can trade well. Well, try it if you like; I say you can’t control your emotions consistently. But, don’t take my word for it. What does your experience tell you? Have you been able to suppress and eliminate your strong emotions such as fear? Have you been able to do it consistently? Honestly, now?
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