Q&A: Reading the Market

Question: This type of market (S&P and SPI) may make you think a bottom is around the corner and you be lured into buying at the first sign of reversal. How can we avoid taking the wrong signals?

Answer:
Well in any trend, there are always signs of reversals. Assuming there is no obvious sign, no one really knows where a move will stop. It’s a matter of making the best judgement at the time and placing orders in a way where if you are wrong, you do not lose too much.

Remember that NG trade I got into a while back? I’m still in it ONLY BECAUSE I worked the right entry price. If I just got in at the any old price, chances are I would have stopped myself out now as the market has been choppy.

The reason I work hard to get the right entry price is so that when I am wrong, I don’t lose too much. It also allows you to hold a trade a little longer.

You have to think of all analysis as just an attempt to put the odds in your favour, not as something meant to give you sure fire signals.

That is what working the correct entries and exits is all about. It moves the probability of a profit in your favour.