The markets have rallied smartly over the last couple of sessions, but you may have found yourself just staring at the gains and not participating. Don’t feel alone, not many were positioned to take advantage. The market moves very fast and absorbs news very quickly, prices adjust and if you’re not willing to pick a side or AT LEAST play both ways then you’ll find yourself on the outside looking in.
With the SPX 500 up nearly 60 handles in just two days and all of the uncertainty clouded over by the fiscal cliff how could you be long? In fact, the experts on TV were saying to ‘stay away’ – Jon Najarian from Optionmonster, a very active and frequent trader said last Friday on CNBC ‘for the first time in 31 years I have no positions’. Seems he missed out?
I look at several indicators to give me the best read on how to be positioned over the short term.
As an options trader I need to look at sentiment, overbought/oversold levels and take the trades that give me the highest probability of success. Sentiment indicators last week were flashing very oversold (VIX spike, put/call ratio spike high, declining consumer confidence) and the market was oversold based on several oscillators. Seemed right enter some trades, and if wrong just take them off and find the next trend. Trading is NOT a game of perfect, there will be occasions that trades are missed but they are not mistakes, rather an outcome for participating in a game with an uncertain result.
Next time you find yourself on the wrong side of the fence, look at some indicators to see where the market is sitting. The market will give you more clues than any pundit or expert.
Read more trading ideas in our daily Markets section.
