During the last few weeks the major U.S. indices have been in two opposite states: highly compressed or highly volatile. The trading range for the Dow so far this year is one of the narrowest in decades. If you are a trend-trader, this will be a frustrating environment because you will be getting false signals from stocks correlated with the major indices, which end up going nowhere or suddenly reversing.
This will be most frustrating for traders who have a Fear of Missing Out (FOMO). These folks will “jump the gun” and typically get caught buying too high or selling short too low… in the non-trending market.
Of course, acting on one’s fear-of-missing-out will be entirely ‘justified’ when suddenly, out of nowhere, sharp rallies and sell-offs arise that move the market more than 1% in a matter of a few hours. These short-lived super-trends occurred repeatedly in the Nasdaq 100 last week.
A 1.2% down day on Tuesday was followed by a rip-roaring 1.6% rally on Wednesday that took the Nasdaq 100 to new highs. But if you thought the market was giving an all-clear signal, Friday’s lackluster performance probably left some doubt.
For active trend followers to be successful, market conditions need to be “tradable” and that’s not always the case. Remember, being flat (on the sidelines) is still a position and it’s always the best position if market conditions are adverse or unsuited to your trading method/style.
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By the way, fear of missing out (FOMO) is associated with certain Trader Personality Types. To take a free Trader Personality Profile click here.
