The markets really scared a lot of people in the last month. We’ve received lots of emails and comments from people wondering what’s happening in the markets and why the deeper downtrend didn’t prompt new trade triggers. Well, the quick answer is “this downtrend did prompt new BAN strategy trade triggers and this pullback is still quite mild compared to historical examples.” Allow me to explain my thinking.
The recent FOMC meeting, as well as the expiration of the futures contracts, usually prompts some broad market concerns. Many professional traders refuse to trade over the 7+ days near an FOMC meeting – the volatility levels are usually much higher, and this can throw some trading strategies into chaos. Our BAN Trader Pro strategy handles volatility quite well most of the time.
Recently, the BAN Trader Pro strategy initiated new trade triggers of subscribers and myself. Our members are engaged in the best-performing assets for the potential upside price rally that may take place over the next couple of months. Our strategies target opportunities based on proven quantitative technology – not emotions and use proven position management to maximize gains while reducing drawdowns.
Transportation Index Daily Chart Is Bullish
This leading index shows early strength in the market with an upside target of $14,668. That is a 3.5%-4.5% upside move ahead of us.
Recently, we’ve seen some substantial support in the Transportation Index that aligns with our BAN Trader Pro strategy. The rally in the Transportation Index, which usually leads the US economy by at least 2 to 4 months, suggests the markets are actively seeking out a support level/momentum base for another rally phase.
Using a Fibonacci Extension tool, we can clearly see the TRAN has another 3.5% to 4.5% to rally before reaching the 100% measured move target near $14,668. This level represents a full 100% rally phase equaling the initial rally from levels near $12,000, which started back in February 2021.
Dow Jones Industrial Index Daily Chart Is Bullish
The Dow Jones Industrial Average has already reached the 100% Fibonacci Measured move – and broken above that level. If the markets rally from this recent pullback, we believe a 4% to 5%+ rally in the Dow index is possible. This type of bullish price trend suggests a target level near $34,000.
One thing many traders fail to consider is these 4% to 5% rallies in the Transportation Index and/or the Dow Jones Industrial Average will likely prompt an 8% to 20%+ rally in some of the best-performing assets/sectors. For example, after the bottom in early February, during a time when the index rallied less than 1%, the best-performing assets we tracked rallied more than 7% to 25%. The strength of these top-performing sectors/symbols can be very powerful – even while the US major indexes are drifting sideways.
If the Transportation and Dow Index rally 4% or more over the next few weeks, then some of the best performing sectors will strong gains in our favor. It depends on how strong these top-performing sectors react to the underlying momentum associated with each symbol, though.
How To Avoid Emotional Trading Decisions
Trading based on emotions can lead to early, and sometimes foolish, entry and exit of positions. The market has a way of faking/shaking price, which often prompts traders to react to the 2% to 4% swings in the markets as if they are catastrophic. Some of the best advice we can offer active traders other than becoming part of our trading group and pre-market analysis and trade alerts are:
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Trust your system/strategy and follow it from entry to exit trigger
Define your risks and run the strategy efficiently
Develop ways to identify and resolve strategy failure early and often
Trading involves risks – learn to execute the strategy within your risk parameters (position sizing)
Don’t let emotions control you. Trade rules should protect you during high & low volatility conditions
If you don’t have a strategy and can’t see yourself sticking to these simple rules, then maybe it is time to find a better strategy or to attempt to develop some of these tactics into your existing strategy. You can follow me to success with my ETF Swing Trading Strategy or our Options Trading Strategy at any time if you want all the work done for you.
Far too many people get lucky with a strategy then leverage their trading because they feel they will never fail. Failure of any strategy often represented as the largest drawdown amount should be multiplied by at least 3x when comparing risks. Just because your strategy showed one period of drawdown representing a -$5,500 loss does not mean that type of price activity is an isolated event. That type of drawdown could repeatedly happen, over a very short period of time, representing a -$16,500 loss.
The strongest strategy components are those that help to contain losses, manage risks and allow for the protection of capital. Remember, “living to trade another day” is far more important than huge gains off of one or two trades followed by a string he big losers that blow up your account.
In closing, get ready for a recovery in stock prices. With the indexes poised to move higher by another 3.5% – 5% before reaching the next 100% measured move suggests some sectors will post spectacular gains. Don’t let emotions dictate your decisions – run your strategy (or find a better strategy to trade with). The best performing sectors/symbols usually continue to outperform the US major indexes when trending higher.
You don’t have to be smart to make money in the stock market; you just need to think differently. That means: we do not equate an “up” market with a “good” market and vi versa – all markets present opportunities to make money!
We believe you can always take what the market gives you and make CONSISTENT money.
Learn more by visiting The Technical Traders!
Chris Vermeulen
Technical Traders Ltd.
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation for their opinion.
I've been feeling a little stressed. thanks for your article.