Road map for a market that losing it's momentum..!
Let’s begin with the definition of momentum:
Momentum used to determine the strength or weakness of a stock's price.
Momentum measures the rate of the rise or fall of a stock price and is a very useful indicator of strength or weakness in the price trend. History has shown that momentum is far more useful during rising markets than during falling markets; the fact that markets rise more often than they fall is the reason for this. In other words, bull markets tend to last longer than bear markets. (Investopedia)
If you check the closing price of the companies with over 100 Billion market cap, soon you will notice only 6 out of 86 were ending the market with more than 1% gain, none above 2%..! I also check the market heat map and incredibly more than 92% of industries and sectors were ending the day in red, this number for the weekly heat map is 75%, and the monthly heat map is just 40%.
Additionally, another important thing to check is the volume price of Tesla, Apple, and Amazon which are the top 3 in most of the days. If you check this you will notice a significant decrease, which is also a good indicator of losing momentum. When we see a constant loss of momentum for more than a week in a market after 11 months of exceptional bullish rally, we should raise the ALARM..!
In conclusion, I believe we are about to experience a correction in the market, at least we don’t have enough evidence of a market crash yet. To me, a market crash is a less likely scenario!
Now we should think of our action plan suitable for this scenario..! But before that, I believe we have to explain the difference between a trader and an investor.
Trader: a person who buys and sells stocks and currencies.
Investor: a person or organization that puts money into financial plans, property, etc. with the expectation of achieving a profit.
I assume most active users on the TradingView platform are traders, not investors! So I will elaborate on the scenario suitable for them.
There are simple questions that will be the answer to many questions, and we should ask them from ourselves:
DO I HAVE A PREDEFINED STRATEGY?
Is SITTING OUTSIDE and REEVALUATION of the situation a part of my strategy or not?
I don’t know what your answers to these questions are, but mine is YES, to both questions.
I believe there will always be opportunities to trade, and we can find them if we search diligently, but the ODDS of success is lower in a market with 92% RED tickers!
Please keep in mind that in a trendless market we can always find 1-3 days trades with single/double-digit returns.
*Most important point for lovers of options trading: when something is not a BUY, it doesn’t mean it is a SELL and vice versa.
My own strategy for the next week is to sit outside and reevaluate to find new opportunities! I know it might be hard for people who become addicted to trading, but I will explain the mechanisms of being addicted to trading in another post.
Moshkelgosha
Momentum used to determine the strength or weakness of a stock's price.
Momentum measures the rate of the rise or fall of a stock price and is a very useful indicator of strength or weakness in the price trend. History has shown that momentum is far more useful during rising markets than during falling markets; the fact that markets rise more often than they fall is the reason for this. In other words, bull markets tend to last longer than bear markets. (Investopedia)
If you check the closing price of the companies with over 100 Billion market cap, soon you will notice only 6 out of 86 were ending the market with more than 1% gain, none above 2%..! I also check the market heat map and incredibly more than 92% of industries and sectors were ending the day in red, this number for the weekly heat map is 75%, and the monthly heat map is just 40%.
Additionally, another important thing to check is the volume price of Tesla, Apple, and Amazon which are the top 3 in most of the days. If you check this you will notice a significant decrease, which is also a good indicator of losing momentum. When we see a constant loss of momentum for more than a week in a market after 11 months of exceptional bullish rally, we should raise the ALARM..!
In conclusion, I believe we are about to experience a correction in the market, at least we don’t have enough evidence of a market crash yet. To me, a market crash is a less likely scenario!
Now we should think of our action plan suitable for this scenario..! But before that, I believe we have to explain the difference between a trader and an investor.
Trader: a person who buys and sells stocks and currencies.
Investor: a person or organization that puts money into financial plans, property, etc. with the expectation of achieving a profit.
I assume most active users on the TradingView platform are traders, not investors! So I will elaborate on the scenario suitable for them.
There are simple questions that will be the answer to many questions, and we should ask them from ourselves:
DO I HAVE A PREDEFINED STRATEGY?
Is SITTING OUTSIDE and REEVALUATION of the situation a part of my strategy or not?
I don’t know what your answers to these questions are, but mine is YES, to both questions.
I believe there will always be opportunities to trade, and we can find them if we search diligently, but the ODDS of success is lower in a market with 92% RED tickers!
Please keep in mind that in a trendless market we can always find 1-3 days trades with single/double-digit returns.
*Most important point for lovers of options trading: when something is not a BUY, it doesn’t mean it is a SELL and vice versa.
My own strategy for the next week is to sit outside and reevaluate to find new opportunities! I know it might be hard for people who become addicted to trading, but I will explain the mechanisms of being addicted to trading in another post.
Moshkelgosha
+250 Quantitative Stock and Option ideas every day!
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