Trade ideas, analysis and low risk set ups for commodities, Bitcoin, gold, silver, coffee, the indexes, options and your retirement. We'll help you keep your emotions out of your trading.
Crude oil's choppy rise from 69.50 is still in progress and further rebound cannot be ruled out. But after all, there is no confirmation of reversal yet as long as 78.04 resistance holds. Below 72.60 minor support will suggest that recovery from 69.50 has completed and flip intraday bias back to the down side for retesting this support first. However, break of 78.04 will argue that whole fall from 83.95 has finished and will bring stronger rebound instead.
In the bigger picture, prior break of medium term trend line support added much credence to the case of reversal. Medium term rise from 33.2, which is treated as a correction to fall from 147.27, should have completed at 83.95 already, on bearish divergence condition in daily MACD. Current fall from 83.95 should extend through 68.59 support towards next key cluster level at 58.32 (50% retracement of 33.2 to 83.95 at 58.58). Decisive break there will strongly suggest that whole decline from 147.27 is resuming for a new low below 33.2. On the upside, break of 78.04 resistance is needed to confirm that fall from 83.95 has completed. Otherwise, outlook will remain bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
Crude oil closed higher on Wednesday and above the 10 day moving average crossing at 73.94 as it extends this week's rebounded. Winter weather across the Northeast along with a rebound in the Dollar helped to underpin today's rally. The high range close sets the stage for a steady to higher opening on Thursday.
Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 75.45 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, September's low crossing at 67.46 is the next downside target.
First resistance is today's high crossing at 74.97 Second resistance is the 20 day moving average crossing at 75.45
First support is last Friday's low crossing at 69.50 Second support is September's low crossing at 67.46
Natural gas closed higher due to short covering on Wednesday but remains below the 10 day moving average crossing at 5.350. The mid-range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are turning bearish hinting that sideways to lower prices are possible near term.
Closes below last Thursday's low crossing at 5.227 are needed to confirm that a short term top has been posted. If March renews the rally off January's low, the reaction high crossing at 5.804 is the next upside target.
First resistance is the 20 day moving average crossing at 5.454 Second resistance is Monday's high crossing at 5.680
First support is last Thursday's low crossing at 5.227 Second support is January's low crossing at 5.060
The U.S. Dollar posted an inside day with a higher close on Wednesday ending a two day correction off last Friday's high. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are overbought and are turning bearish signaling that a short term top might be in or is near.
Closes below the 20 day moving average crossing at 78.93 are needed to confirm that a short term top has been posted. If March extends this winter's rally, the 50% retracement level of the 2009-2010 decline crossing at 81.32 is the next upside target.
First resistance is last Friday's high crossing at 80.82 Second resistance is the 50% retracement level of the 2009-2010 decline crossing at 81.32
First support is the 10 day moving average crossing at 79.81 Second support is the 20 day moving average crossing at 78.93
There is never any shortage of chart comparisons between recent and current recessions and it's time we make our own in todays short video analysis.
Today we examine the crash of 1929 and the similarities to today’s Dow. This video is not meant to scare anyone, but to educate investors and traders of the possibilities that may exist in today’s market.
We could be, repeat, could be very close to a tipping point similar to that of 1930 when the Dow had ended a 50% correction to the upside. I invite you to watch my latest video and see what makes sense to you.
Just click here to watch the video and as always our videos are free to watch and there are no registration requirements. If you agree or disagree with this video please feel free to comment.
Oil rose for a third day as the U.S. froze assets of four companies connected with Iran, heightening tensions with OPEC’s second largest crude producer. Futures increased as much as 1.7 percent as the Treasury Department announced the restrictions on the companies and one individual with links to Iran’s Islamic Revolutionary Guard Corps. The U.S. has accused the Guard of developing weapons of mass destruction and supporting terrorism.
“It’s an escalation, but we’ve been escalating in baby steps for a long time,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “What the Iranians are more worried about is the degree of unrest internally, which is not affected by these sanctions.” Crude oil for March delivery rose $1.05, or 1.4 percent, to $74.80 a barrel at 2:06 p.m. on New York Mercantile Exchange. Futures have lost 5.8 percent this year.
The U.S. has been trying to rally reluctant countries, especially China, to sanction Iran as the government in Tehran resists pressure to scale back its uranium enrichment work. Secretary of State Hillary Clinton has signaled the U.S. wants to target the Revolutionary Guard, an elite military branch with extensive business interests. Iran already is subject to United Nations Security Council restrictions, including a 2007 resolution freezing assets and banning travel for some Revolutionary Guard-affiliated companies and officials. The Iranian government maintains that its nuclear development work is a legitimate effort to build a civilian power industry.....
Crude oil was steady to slightly higher due to short covering overnight as it extends the rebound off last Friday's low. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term.
Closes above the 20 day moving average crossing at 75.43 are needed to confirm that a short term low has been posted. If March renews last week's decline, last September's low crossing at 67.46 is the next downside target.
Crude oil pivot point, our line in the sand is 73.07
First resistance is the overnight high crossing at 74.30 Second resistance is the 20 day moving average crossing at 75.43
First support is last Friday's low crossing at 69.50 Second support is last September's low crossing at 67.46
Natural gas was higher due to short covering overnight as it consolidates some of Tuesday's decline. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near term.
If March extends Tuesday's decline, the reaction low crossing at 5.227 is the next downside target. Closes above the 20 day moving average crossing at 5.456 would temper the near term bearish outlook.
Wednesday's pivot point for natural gas is 5.339
First resistance is the 20 day moving average crossing at 5.456 Second resistance is Monday's high crossing at 5.680
First support is Tuesday's low crossing at 5.330 Second support is the reaction low crossing at 5.227
The U.S. Dollar was lower due to profit taking overnight as it consolidates some of last week's rally but remains above the 38% retracement level of the 2009 decline crossing at 79.71. Stochastics and the RSI are overbought and are turning bearish signaling that a short term top is in or is near.
Closes below the 20 day moving average crossing at 78.92 are needed to confirm that a short term top has been posted. If March renews this winter's rally, the 50% retracement level of the 2009-decline crossing at 81.32 is the next upside target.
First resistance is last Friday's high crossing at 80.82 Second resistance is the 50% retracement level of the 2009 decline crossing at 81.32
First support is the 10 day moving average crossing at 79.79 Second support is the 20 day moving average crossing at 78.92
Crude oil's rebound from 69.50 extends further and further rally cannot be ruled out. Nevertheless, there is no confirmation of reversal yet as long as 78.04 resistance holds. Below 71.3 minor support will suggest that recovery from 69.50 has completed and flip intraday bias back to the down side for retesting this support first. However, break of 78.04 will argue that whole fall from 83.95 has finished and will bring stronger rebound instead.
In the bigger picture, prior break of medium term trend line support added much credence to the case of reversal. Medium term rise from 33.2, which is treated as a correction to fall from 147.27, should have completed at 83.95 already, on bearish divergence condition in daily MACD. Current fall from 83.95 should extend through 68.59 support towards next key cluster level at 58.32 (50% retracement of 33.2 to 83.95 at 58.58). Decisive break there will strongly suggest that whole decline from 147.27 is resuming for a new low below 33.2. On the upside, break of 78.04 resistance is needed to indicate that fall from 83.95 has completed. Otherwise, outlook will remain bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
Oil fell in New York after an industry report showed crude and gasoline stockpiles in the U.S. increased last week, indicating demand from the largest energy consuming country may be weak. Oil declined after the American Petroleum Institute said crude inventories rose to the highest since October last year and gasoline supplies reached the highest since March 1999. An Energy Department report due Feb. 12 may also show stockpiles increased, according to a Bloomberg News survey of analysts.
“There is plenty of oil out there,” said Peter McGuire, a managing director at CWA Global Markets Pty in Sydney. “There is no shortage of supply and demand is relatively weak.” Crude oil for March delivery dropped as much as 45 cents, or 0.6 percent, to $73.30 a barrel in electronic trading on the New York Mercantile Exchange. It was at $73.48 at 9:53 a.m. Singapore time. Yesterday, the contract rose 2.6 percent, the most in a week, to settle at $73.75. Futures have lost more than 7 percent this year.
U.S. crude stockpiles gained 7.2 million barrels to 337.6 million in the week to Feb. 5, according to the API. Gasoline supplies rebounded 1.6 million barrels to 228.8 million. The Energy Department’s weekly report may show crude inventories rising by 1.5 million barrels and gasoline by 300,000 barrels, based on the median of analyst estimates.....Read the entire article.
Crude oil closed higher on optimism over a financial rescue package for Greece on Tuesday as it extended the rebounded off the 87% retracement level of the September-January rally crossing at 69.58. The high range close sets the stage for a steady to higher opening on Wednesday.
Stochastics and the RSI are diverging but are turning neutral with today's rally signaling that a low might be in or is near. Closes above the 20 day moving average crossing at 75.80 are needed to confirm that a short term low has been posted. If March extends the decline off January's high, September's low crossing at 67.46 is the next downside target.
Tuesday evening pivot point for crude oil is 73.10
First resistance is today's high crossing at 74.15 Second resistance is the 20 day moving average crossing at 75.80
First support is last Friday's low crossing at 69.50 Second support is September's low crossing at 67.46
Natural gas closed lower on Tuesday and below the 10 day moving average crossing at 5.343 following yesterday's downside reversal. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are turning neutral to bearish hinting that sideways to lower prices are possible near term.
Closes below last Thursday's low crossing at 5.227 are needed to confirm that a short term top has been posted. If March extends the rally off January's low, the reaction high crossing at 5.804 is the next upside target.
Natural gas pivot point for Tuesday evening is 5.352
First resistance is Monday's high crossing at 5.680 Second resistance is the reaction high crossing at 5.804
First support is last Thursday's low crossing at 5.227 Second support is January's low crossing at 5.060
The U.S. Dollar closed lower due to profit taking on Tuesday as it consolidated some of last week's rally but remains above the 38% retracement level of the 2009-2010 decline crossing at 79.71. The low range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways prices are possible near term.
If March extends this winter's rally, the 50% retracement level of the 2009-2010 decline crossing at 81.32 is the next upside target. Closes below the 20 day moving average crossing at 78.77 are needed to confirm that a short term top has been posted.
First resistance is last Friday's high crossing at 80.82 Second resistance is the 50% retracement level of the 2009-2010 decline crossing at 81.32
First support is the 10 day moving average crossing at 79.69 Second support is the 20 day moving average crossing at 78.77
Crude oil rose for a second day as the dollar weakened against the euro, increasing the appeal of commodities as an alternative investment, and equities advanced. Oil gained as much as 1.9 percent as the dollar, which traded at an eight month high last week, fell for the first time since Feb. 2 amid speculation European officials meeting this week will assist Greece in tackling its budget deficit. The Standard & Poor’s 500 Index also rose on the outlook for Greece.
“It looks like the rebound of the dollar is weakening a bit, and that’s what’s driving oil to the largest extent right now,” said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston. “The dollar and equities are certainly having a significant impact.” Crude oil for March delivery rose $1.17, or 1.6 percent, to $73.06 a barrel at 10:26 a.m. on the New York Mercantile Exchange. Futures have gained 85 percent in the past year.
The dollar lost 0.7 percent against the euro to $1.3744 from $1.3649 yesterday. It touched $1.3586 on Feb. 5. “The overall market is up because the euro has strengthened on speculation that the European Union will do something to assist the Greek government with their deficit,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.....Read the entire article.
People have been emailing me and asking me what the FREE trading lesson program we were running is all about. This program is designed to give traders some insight, tools and practices to help them trade successfully.
In this free, informative email course, we will show and explain the tools and strategies you need to increase your success rate in the marketplace. A few of the subjects that we will cover are:
(1) The importance of psychology in price movement
(2) How to spot mega trends
(3) Understanding of technical price objectives
(4) How to picture price objectives
(5) How to trade with moving averages
(6) How to use point and figure trading techniques
(7) How to use the RSI indicator
(8) How to correctly use stochastics in your trading
(9) How to use the ADX indicator to capture trends
(10) How to capitalize on natural market cycles.
Plus, you will you will learn about Fibonacci retracements, MACD, Bollinger Bands and much more.
Simply take a minute to fill out this form and we'll get you started right away!
Crude oil was steady to slightly higher due to short covering overnight as it consolidates some of last Friday's decline. Stochastics and the RSI are diverging but are neutral to bearish signaling that sideways to lower prices are possible near term.
If March extends last week's decline, last September's low crossing at 67.46 is the next downside target. Closes above the 20 day moving average crossing at 75.72 are needed to confirm that a short term low has been posted.
Tuesday's pivot point, our line in the sand 71.68
First resistance is the 10 day moving average crossing at 73.73 Second resistance is the 20 day moving average crossing at 75.72
First support is last Friday's low crossing at 69.50 Second support is last September's low crossing at 67.46
Natural gas was slightly higher overnight as it consolidates some of Monday's decline. Stochastics and the RSI remain neutral to bullish signaling that additional strength is possible near term.
If March extends the rally off January's low, the reaction high crossing at 5.804 is the next upside target. Closes below the 10 day moving average crossing at 5.356 are needed to confirm that a short term top has been posted.
Natural gas pivot point for Tuesday is 5.499
First resistance is Monday's high crossing at 5.680 Second resistance is the reaction high crossing at 5.804
First support is the 10 day moving average crossing at 5.356 Second support is the reaction low crossing at 5.227
The U.S. Dollar was lower due to profit taking overnight as it consolidates some of last week's rally but remains above the 38% retracement level of the 2009 decline crossing at 79.71. Stochastics and the RSI are overbought but are neutral to bullish signaling that sideways to higher prices are possible near term.
If March extends this winter's rally, the 50% retracement level of the 2009 decline crossing at 81.32 is the next upside target. Closes below the 20 day moving average crossing at 78.79 would confirm that a short term top has been posted.
First resistance is last Friday's high crossing at 80.82 Second resistance is the 50% retracement level of the 2009 decline crossing at 81.32
First support is the 10 day moving average crossing at 79.72 Second support is the 20 day moving average crossing at 78.79
With 4 hours MACD crossed above signal line, intraday bias in crude oil is turned neutral for the moment. Some more consolidations cannot be ruled out but upside should be limited by 73.94 resistance and bring fall resumption. Below 69.50 will target 100% projection of 83.95 to 72.43 from 78.04 at 66.52 next. However, break of 73.94 will argue that stronger rebound is underway and will put focus back to 78.04 resistance instead.
In the bigger picture, the strong break of medium term trend line support added much credence to the case of reversal. Medium term rise from 33.2, which is treated as a correction to fall from 147.27, should have completed at 83.95 already, on bearish divergence condition in daily MACD. Current fall from 83.95 should extend through 68.59 support towards next key cluster level at 58.32 (50% retracement of 33.2 to 83.95 at 58.58). Decisive break there will strongly suggest that whole decline from 147.27 is resuming for a new low below 33.2. On the upside, break of 78.04 resistance is needed to indicate that fall from 83.95 has completed. Otherwise, outlook will remain bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
Crude oil closed higher due to short covering on Monday as it rebounded off the 87% retracement level of the September-January rally crossing at 69.58. The mid range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI have turned bearish again signaling that sideways to lower prices are possible near term.
If March extends the decline off January's high, September's low crossing at 67.46 is the next downside target. Closes above the 20 day moving average crossing at 76.25 are needed to confirm that a short term low has been posted.
Crude oil pivot point for Monday evening is 71.62
First resistance is the 10 day moving average crossing at 73.97 Second resistance is the 20 day moving average crossing at 76.25
First support is last Friday's low crossing at 69.50 Second support is September's low crossing at 67.46
Natural gas posted a downside reversal on Monday and closed below the 20 day moving average crossing at 5.474. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.
If March extends the rally off January's low, the reaction high crossing at 5.804 is the next upside target. Closes below last Thursday's low crossing at 5.227 would temper the near term friendly outlook.
Natural gas pivot point for Monday evening is 5.499
First resistance is today's high crossing at 5.680 Second resistance is the reaction high crossing at 5.804
First support is last Thursday's low crossing at 5.227 Second support is January's low crossing at 5.060
The U.S. Dollar closed lower due to profit taking on Monday as it consolidated some of last week's rally but remains above the 38% retracement level of the 2009-2010 decline crossing at 79.71. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways prices are possible near term.
If March extends this winter's rally, the 50% retracement level of the 2009-2010 decline crossing at 81.32 is the next upside target. Closes below the 20 day moving average crossing at 78.62 are needed to confirm that a short term top has been posted.
First resistance is last Friday's high crossing at 80.82 Second resistance is the 50% retracement level of the 2009-2010 decline crossing at 81.32
First support is the 10 day moving average crossing at 79.54 Second support is the 20 day moving average crossing at 78.62
Oil prices have staged a remarkable rally since a year ago, retracing almost 50 per cent of the drop from the US $147 high of 2008. The price chart for oil has formed a rising wedge during the last six months (see black converging trend lines in the chart below), which is potentially quite bearish since this type of chart formation normally resolves itself sharply to the downside.
Wedge formations are continuation patterns such that a rising wedge is a temporary pause in a falling price trend, whereas a falling wedge is a temporary pause in a rising price trend. During the formation of a rising wedge the selling pressure on prices has started to overwhelm the buying pressure resulting in the slope of the top trend line (resistance) tilting towards the bottom trend line (support). If the support provided by the bottom trend line fails to hold prices and a downward breakout occurs there may be a sharp and significant price drop.
Oil prices are facing resistance at about US$85 and they have really good support should they drop as low as US$60, which they may if there is a downward breakout from the rising wedge. This downward breakout may happen if/when the 50-day moving average crosses below the 200-day moving average. The last time the 50-day MA crossed below the 200-day MA the price then dropped from US$110 to US$32 (see October 2008 cross-over in the chart above).
A drop in oil prices from US$85 to US$60 would retrace about 50 per cent of the increase from the US$32 low of early 2009, which would likely exhaust the selling pressure as there is excellent price support at US$60.
If oil prices were to drop as low as US$60 and find support at that level the stage could be set for the next rally in oil prices. On the upside, oil prices would need to break through US$100 and find support at that level in order to gain momentum to possibly overtake the US$147 high of 2008. A move of that magnitude is unlikely in 2010 unless there is some fairly significant political unrest.
On the downside, should oil prices drop as low as US$60 and fail to find support at that level, then prices could continue lower with several support levels at lower prices. Oil prices have excellent support at US$40 dating back to 2003 should they drop that low.
Conclusion: Oil prices may drop to US$60 in the short-term if there is downward breakout from the rising wedge, which will impact oil-related investments. If prices drop to US$60 then wait for support to establish at level. If there is an upward breakout from the rising wedge, prices should find support at US$85 as resistance would then become support.
The United States Oil Fund, LP (USO-NYSE, US$35.64), an ETF that tracks the performance of oil prices, has a similar price chart to oil prices (see chart below) with a similar steep price decrease subsequent to a 50-day MA cross-over of the 200-day MA in October 2008 along with the recent rising wedge formation. USO faces resistance at US$40 and has support at US$32. Should the price of USO fail to hold at US$32 there is excellent support at US$26 dating back to 2000.
Brian Hoffman is an affiliate of the Market Technicians Assoc. and a member of the Canadian Society of Technical Analysts
Oil rose for the first time in four days as the U.S. mid-Atlantic region braced for a new winter storm in coming days and dug out from a weekend blizzard. Oil rebounded from a seven week low after the National Weather Service issued storm warnings from Utah to New Jersey and advisories for below-normal temperatures in the East that would increase demand for heating fuel. The weekend storm left almost 40 inches of snow in some places and shut government offices today in Washington.
“The cold weather is persisting here, and it’s not relenting,” said John Kilduff, a partner at Round Earth Capital, a New York based hedge fund that focuses on food and energy commodities. Oil prices also advanced amid technical support at the 200 day moving average of $70.72, he said. Crude oil for March delivery rose 85 cents, or 1.2 percent, to $72.04 a barrel at 11:02 a.m. on the New York Mercantile Exchange. Oil settled at $71.19 on Feb. 5, the lowest price since Dec. 15. Futures have gained 79 percent in the past year.
The National Weather Service is forecasting temperatures will be below normal for the next six to 10 days along the Eastern Coast, from Florida to Maine. “A very wintry and unseasonably cold week remains on tap from the southern plains and Midwest to the Northeast and mid-Atlantic,” said Jim Rouiller, a senior energy meteorologist at private forecaster Planalytics Inc., in Wayne, Pennsylvania. The new storm may reach “crippling proportions from Washington and Philadelphia to New York City and possibly Boston by Wednesday”....Read the entire article.
Crude oil was steady to slightly higher overnight as it consolidates some of last Friday's decline. Stochastics and the RSI are diverging and have turned bearish again signaling that sideways to lower prices are possible near term.
If March extends last week's decline, last September's low crossing at 67.46 is the next downside target. Closes above the 20 day moving average crossing at 76.22 would confirm that a short term low has been posted.
Monday's pivot point, our line in the sand is 71.54
First resistance is the 10 day moving average crossing at 73.90 Second resistance is the 20 day moving average crossing at 76.22
First support is last Friday's low crossing at 69.50 Second support is last September's low crossing at 67.46
Natural gas was higher overnight as it extends last Friday's close above the 20 day moving average crossing at 5.484. Stochastics and the RSI remain bullish signaling that additional strength is possible near term.
If March extends the overnight rally, the reaction high crossing at 5.804 is the next upside target. Closes below the 10 day moving average crossing at 5.278 are needed to confirm that a short term top has been posted.
Natural gas pivot point for Monday is 5.499
First resistance is the overnight high crossing at 5.680 Second resistance is the reaction high crossing at 5.804
First support is the 20 day moving average crossing at 5.484 Second support is the 10 day moving average crossing at 5.378
The U.S. Dollar was lower due to profit taking overnight as it consolidates some of last week's rally but remains above the 38% retracement level of the 2009 decline crossing at 79.71. Stochastics and the RSI are overbought but are neutral to bullish signaling that sideways to higher prices are possible near term.
If March extends this winter's rally, the 50% retracement level of the 2009 decline crossing at 81.32 is the next upside target. Closes below the 20 day moving average crossing at 78.63 would confirm that a short term top has been posted.
First resistance is last Friday's high crossing at 80.82 Second resistance is the 50% retracement level of the 2009 decline crossing at 81.32
First support is the 10 day moving average crossing at 79.55 Second support is the 20 day moving average crossing at 78.63
Crude oil continues to stay in tight range above 69.50 low made last week but after all, intraday bias remains on the downside with 73.94 minor resistance intact. Deeper decline is still expected to 100% projection of 83.95 to 72.43 from 78.04 at 66.52 next. On the upside, above 73.94 minor resistance will turn intraday bias neutral and bring more consolidations. But upside should be limited below 78.04 resistance and bring fall resumption.
In the bigger picture, the strong break of medium term trend line support added much credence to the case of reversal. Medium term rise from 33.2, which is treated as a correction to fall from 147.27, should have completed at 83.95 already, on bearish divergence condition in daily MACD. Current fall from 83.95 should extend through 68.59 support towards next key cluster level at 58.32 (50% retracement of 33.2 to 83.95 at 58.58). Decisive break there will strongly suggest that whole decline from 147.27 is resuming for a new low below 33.2. On the upside, break of 78.04 resistance is needed to indicate that fall from 83.95 has completed. Otherwise, outlook will remain bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
Understanding market psychology is crucial for a trader’s success. But so many people get caught up in the daily market volatility, media coverage and “noise” of the trading environment, it’s almost impossible to not think and trade in agreement with the majority of traders.
However, effective technical analysis allows us to use trends, patterns and other indicators to evaluate the market’s current psychological state. Fortunately, this analysis can both enable us to independently forecast whether the market is heading in an upward or downward trend and do so against the grain of the majority.
It takes a disciplined trader to be able to watch and listen to the market doing one thing, filter out the noise, then do the opposite – all in a controlled manor. To this day I still find myself fighting the herd mentality at times and that is when I step away from the computer and regroup.
I have a simple rule that has saved me thousands over the years. I would rather miss a trade and learn what caused me to get confused, then to take a loss.
Rule # 1 – When in Doubt, Stay Out!
There are two types of traders:
1. Herd Mentality Trader – Someone who trades off fear and greed buying near tops and panic selling out at the bottom with the masses. 2. Black Sheep Trader – A trader who stand out from the masses and trades opposite to the “herd” during extreme levels.
Last weeks market action really allowed us to see which way the masses were moving. The extremely high selling volume and sharp price decline notified us that the market was trading off FEAR. And, last Thursday we actually saw PANIC which tells us the balance of the market (retail investors, John Doe’s, The “Herd”) were exiting their positions.
When we see this happen, it’s generally a good time to start scaling into long positions, as most of the down side has already happened.
I have been talking about an ABC retrace pattern for the indexes and gold for some time and last week we got just that. An ABC retrace is when we have 3 waves which are, down, small up, then another leg down. In short this wave breaks the uptrend of higher highs and lows, as it forms a lower low telling novice traders to sell and go short. This is what causes the high volume and sharp sell offs.
Below are a few charts showing the 2009 July lows and where we are now, February 2010:
SP500 – Daily Trading Chart
Gold – Daily Trading Chart
Silver – Daily Trading Chart
Oil – Daily Trading Chart
Intraday Price Action – Just click here if you want to see some of my exciting intraday trading charts check out the setups last week.
Market Psychology Trading Conclusion: Most get involved with the stock market because it looks like something they can quickly learn and start making money from home. But it doesn’t take long before they quickly realize there is more to trading than meets the eye.
While trading looks easy from a glance, in actuality I think its one of the toughest jobs out there.
Why? Well, this is what you are up against: 1. You are trying to predict something that is unpredictable 2. You are trading against millions of other highly skilled traders 3. You are trading against automated computers with complex algorithms 4. You are trading with your hard earned money which causes fear and greed 5. You must accept losing trades as that is part of the business 6. You must trade with a proven trading strategy and follow the system 7. You must understand money management and apply it to every trade 8. You must truly love the market cause it will break you down mentally
I don’t want to say you must be a contrarian, but in reality you must do the opposite of the masses during times of extreme price behavior.
These extremes happen on a daily basis when trading intraday charts and every 4-6 weeks when looking at daily charts. The toughest part is to pull the trigger when emotions are flying high in the market and you are looking to do the opposite. It takes several trades before you even start to get comfortable doing this.
I hope this helps shed some light on market psychology.
