In this current state of affairs, remember this…
We don’t want to mix politics and trading.
But, that doesn’t mean you should ignore everything related to politics, Gang. I get that this can be confusing. It sounds hypocritical or counterintuitive…
Which is why I want to talk about psychological reactions to politicians, and show you the importance of this connection.
Here’s why this connection (and distinction) is important…
Why do I think this is important?
STEP ONE: Going Back in Time (But Only By a Week or So)
Well based off of my analysis and recent weeks, there are certain psychological reactions that the market has responded to… and these have been fairly predictable.
In order for you to see exactly what I’m talking about, I’m going to take a step back…
So let’s look at several weeks ago when we were anticipating President Trump’s talk.
Specifically I’m referring to his initial address during the impeachment hearings on November 13, 2019. While this is “older” news the relevance and the lessons learned ring true for at least the rest of 2019 and into 2020.
On November 12, 2019 I knew one thing — we really didn’t want to be in the market come noon the next day. I also knew that the markets were broad, and many were probably sharing a similar mindset.
That mindset that we were all sharing?
Don’t be in these big positions going into President Trump’s discussion, AND always know what’s on your economic calendar, Gang.
STEP TWO: Diving Into November 12, 2019
That day the market opened and started trading right off the bat. Due to this, we were able to establish plenty of support above the volume weighted average price.
What’s the volume weighted average price?
It’s a trio of time anchored VWAP — volume weighted average price lines (with the volume being the priority followed by price).
Since we were above that… I was able to conclude that there was a good bit of bullish participation happening. That held true, as later on in the day we finally breached the clearing range, the long trade triggered, and it opened up to a variety of different types of long positions.
The specific on it opened up that day?
What’s a retest?
It’s when the market breaches and comes back at some point to the same level (explanation: it’s “retesting” the previous level it was at). This is what’s known as the clearing range high.
Something to note before we move on, however. Normally I’m about 50/50 when the market retests. So what made me so confident in this particular one?
But how did I identify that momentum and gain additional confidence, Gang?
STEP THREE: Propulsion Dots
Through my Propulsion Dots indicator — which is a free indicator for anyone who is either a member with Simpler Trading or subscribes to this Newsletter. (You can find more out about it here.)
This indicator shows me when shorter period exponential moving averages cross higher through longer period exponential moving averages and interact with price. When this happens these dots “turn on”, and they literally replace my 13 EMA and 21 EMA.
That tells me there’s a certain amount of momentum (and don’t forget, earlier I confirmed that the volume was participating and I could be bullish)….
So when you pair these together, that’s a cue that the market’s found a gas pedal on a pullback.
That knowledge gave us the ability in the Futures Trading Room that morning to confidently trade for the first hour to hour and a half… we knew when it was no longer “safe” to trade, but we didn’t sit on the sidelines until then.