This is the weakest market I’ve seen since 2001-2002.\u00a0 Mike and I took many extended vacations in 01 as it was far more profitable to be on the golf course than trade a market that severely limited our ability to short stocks.The good news is that unlike 01 we now have the ability to trade both sides of the market. \u00a0Yes, \u00a0the government took away our ability to short the financials for a few weeks.\u00a0 boo hoo! (restrictions will be lifted on Thursday) \u00a0But the amount of money available to short term traders in this meltdown is the opposite of what we experienced back in 01.\u00a0 <\/p>\n
In a blog I wrote two weeks ago I talked about making adjustments as market conditions\u00a0 change. \u00a0One of the setups I mentioned that is working right now involved stocks that were making powerful downmoves in a short period of time, 1 to 3 minutes, then were retracing to prices where I would establish a short position. \u00a0This is my favorite trading setup right now. \u00a0 It offers the greatest risk\/reward for intraday traders. \u00a0 Shorting a stock that is falling on the Open has worked well recently but there is still the risk of a powerful reversal in the first few minutes after the bell has rung.<\/p>\n
Here are a few things to consider when looking for this setup. \u00a0One, \u00a0it is preferable that the stock was either trading in a range or moving higher prior to the powerful downmove. This is because the strong downmove is most likely signalling a new direction for the stock and is not a final panic bottom in a stock that was already trending down. \u00a0Two,\u00a0 be more aggressive if the market is behaving in a weak fashion when this opportunity presents itself. \u00a0If the stock’s corresponding futures’ contract is negative and trending lower then that is another check in your favor. \u00a0Three, allow the stock sufficient room to retrace prior to establishing a short position. \u00a0To often traders attempt to short a stock too close to its intraday low and are shaken out by nothing more than a typical retracement. \u00a0I look for retracements between 30-50% of the current downleg for a safe entry point.<\/p>\n","protected":false},"excerpt":{"rendered":"